Chinese Threaten Retaliation to Senate Vote
- Markets slide in reaction to Chinese statement
- Senate votes to support Hong Kong protest
- Yet another sign of tension between Americans and Chinese
In the never-ending saga of the China-US trade deal, optimism waxes and wanes at the drop of a hat. The most recent headline has been that the Chinese are quite upset with the idea of Congress passing a resolution in support of the Hong Kong protests.
The vote for a bill passing the support of Hong Kong protests appeared before the Senate, getting support just as it did in the House of Representatives. The resolution calls for the continued recognition of Hong Kong as an autonomous region and warns Beijing against violently suppressing the protesters.
Hu Xijin, Global Times editor and a well-known mouthpiece for the Chinese Communist Party, said:
“China wants a deal but is prepared for the worst case scenario, a prolonged trade war.”
This has quite a few people concerned about the trade negotiations going forward, which should not be much of a surprise, as there are structural and fundamental issues separating the two countries.
There were significant shifts in the marketplace during the Asian session, with gold spiking slightly and futures markets dropping in the US. The reaction is understandable because, at that time of day, a huge portion of the volume is done by algorithmic trading. The question now will be whether or not the Americans follow through.
It would, in fact, make sense that the risk appetite pulled back in the stock market anyway, as they have gotten a bit overstretched.
However, it should be noted that later in the session the Federal Reserve releases the FOMC Meeting Minutes from the last gathering. This is worth paying attention to as there are a lot of questions about what the Federal Reserve will do next.
Currently, it looks as if the Fed is on the sidelines and willing to hold monetary policy, but the meeting minutes will give us an idea as to what the members are thinking.
Trading going forward
Trading is going to continue to be very difficult and not for the squeamish. That being said, the longer-term trend is for assets to appreciate in value. Still, people are understandably concerned, as it appears that the noise from US-China relations will continue to be deafening at times.
There is a major structural issue between both economies, plus thought processes that will continue to make a complete deal all but possible anytime soon. This is a long-term and protracted headache for global markets.