Trade Developments Lift U.S. and Chinese Stocks
Positive news about U.S.-China trade negotiations seem rather plentiful of late. These developments have helped contribute to market surges on both sides of the Pacific. Recent trade developments have lifted both U.S. stocks (represented by the S&P 500) and Chinese stocks (represented by the Shanghai Composite).
Rumors of Lower U.S. Tariffs on Chinese Goods
Ahead of a visit to Washington by China’s lead trade negotiator later this month, WSJ reported Thursday that Treasury Secretary Mnuchin was open to lowering U.S. tariffs on Chinese products. A Treasury Dept. spokesperson later disavowed this report. But it provided a glimmer of hope that U.S.-China trade negotiations might be progressing towards compromise.
China to Increase U.S. Imports
This hope was boosted on Friday when Bloomberg News reported that China made an offer to increase imports from the U.S. over a six-year period. The ultimate goal would be to reduce the U.S. trade deficit with China to zero. This would be contingent, though, on President Trump’s re-election for a second term. Though these conciliatory remarks are currently little more than talk, they’re encouraging signs that both sides may be eager enough to get a deal done.
Trade Progress Boosts Markets
From the market’s perspective, a potential trade war has lately been on the forefront of concerns for both U.S. and Chinese investors. Any sign of progress in trade talks has the potential to boost equity markets. And that’s exactly what’s happened for the U.S. stock market and, to a lesser extent, the Chinese markets.
U.S. Stocks vs Chinese Stocks
The performance comparison chart above shows both the S&P 500 (representing the U.S.) and the Shanghai Composite (representing China) over a one-year period. The y-axis shows price and one-year performance for both as of the market close on Friday, 1/18/2019.
A few interesting observations to note about this chart. The Shanghai Composite has been trending down steadily for the past year. It lost a full 26.80% over the year (as of Friday’s market close). In contrast, the S&P 500 was trending up until October. After that, though, some exceptionally jarring volatility began. The major damage, though, was done in the month of December. The index plunged throughout the month all the way up to December 24. In the New Year, the S&P 500 made a major reversal, and is now down less than 6% for the year (as of Friday’s market close).
The performance discrepancy between the two indexes is clear. Although any success in U.S.-China trade negotiations is apt to help both countries’ markets, the U.S. very likely has more to gain by a successful deal than China does. If this is indeed the case, we could see the performance discrepancy between the two countries widen even further.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. 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