Rising US-China Trade Optimism Lifts All Boats
Continued optimism over the prospects of a potentially successful US-China trade deal has helped lift both U.S. and Chinese markets. As we noted here, President Trump said on Tuesday that he would consider postponing the current deadline for U.S.-China trade negotiations. This helped boost confidence that both sides would likely do what it takes to get a mutually beneficial deal done. In turn, any success with a trade deal would bode well for China’s slowing growth, as well as the U.S. economy. U.S. negotiators, including Treasury Secretary Steven Mnuchin, are currently in China and slated to meet with Chinese President Xi Jinping on Friday. The absence of a signed agreement by March 1 (or a potentially Trump-postponed deadline) would prompt increased U.S. tariffs on Chinese products.
Market Optimism Boosts Both U.S. and China Stocks
Market optimism that a deal may indeed be reached in the near future has helped boost both the S&P 500 (SPX) and the Shanghai Composite (an index of all stocks traded on the Shanghai Stock Exchange). The chart above shows both major benchmark indexes rallying sharply since the beginning of the year. The Shanghai Composite has been particularly strong this week as U.S. and Chinese negotiators work to hammer out a deal in Beijing. On Wednesday, the Chinese benchmark index broke out above a major double-bottom pattern, which is a strong bullish signal for the Chinese markets.
S&P 500 vs Shanghai Composite
When the two indexes are placed in contrast, it’s clear that the S&P 500 has performed substantially better than the Shanghai Composite in the recent past. While the S&P 500’s 1-year performance is in the low, but positive, single digits, the Shanghai Composite’s 1-year performance lags far behind at negative double digits.
However, if a solid deal is indeed reached within the next 2-3 weeks, we could be seeing the Chinese equity markets play catch up. China most likely has significantly more to gain by securing a US-China trade deal than the U.S.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart