Just a handful of days ago, the US-China trade situation looked to be improving. Trump and Xi reportedly had a breakthrough meeting and China even went as far as to deliberately make a positive public statement in an effort to prop up US markets. However, things have worsened rapidly. First, the US arrested the CFO of Chinese giant Huawei, which angered Beijing, and now the US is close to issuing a travel warning after China detained a Canadian diplomat. The detention is part of an effort to compel Canada not to extradite the Huawei CFO to the US.
FINSUM: We went from public display of détente to a very tense diplomatic situation. The outlook for the trade war, which will be a reflection of all the other issues, looks bleak at the moment.
Markets plunged on Tuesday, at least partly because of fears over the fragility of the US-China truce on trade. China tried to bolster belief in a deal this week by publicly reaffirming its commitment. However, any hopes of a trade agreement took a definitive nose dive today as the CFO of Chinese giant Huawei was arrested in Canada at the US’ request. Futures markets dove so sharply on the news that the CME had to stop trading for a period.
FINSUM: This could be a very wild day. Market are off to a rough start this morning, but the mood in the afternoon will be the big test of sentiment, in our opinion.
One of the scary facts of yesterday’s selloff was that there wasn’t a single identifiable catalyst for it. That said, one of those that had a certain effect was growing doubt about the strength of the Trump-Xi trade truce. Well that concern got a bit of support today as China publicly reaffirmed its commitment to the trade détente. Beijing said it was working toward a trade agreement with the US by March 1st, a sign that it intends to follow through on the promises made by Trump and Xi over the weekend.
FINSUM: We think it is a good sign China made this kind of statement. It seems an obvious reaction to the big stock market drop yesterday, but the fact that they care to help out is a good indication of where things are heading.
Markets are having a very rough day. Both the S&P500 and the Dow are down almost 3%. Financials have been leading losses. The selloff appears to be centered on fears over the fragility of the US-China trade “truce”. Treasury bonds have been rallying, leading to selloffs in tech and banks. The Treasury curve started to invert yesterday, which also seems to have spooked investors.
FINSUM: What a difference a day makes! Just yesterday it seemed like stocks might be lined up for a nice end of year run. A day later, the trade trace has created more tension than before and the yield curve is starting to invert.
Markets and the global economy got some very welcome news this weekend. On the sidelines of the G-20 conference, President Trump and Chinese leader Xi came to a “truce” in their trade war spat this weekend after what they both called a “high successful meeting”. Accordingly, several industry-specific stocks should react well to the news. These stocks are: Stanley Black & Decker, Caterpillar, Emerson Electric, AGCO Corporation, and 3M.
FINSUM: Many of these stocks already have big tariff-driven headwinds in their 2019 outlooks, so the possibility for big reversals seems likely. A lot of gloom had already set in, which means there is significant upside.