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Can the Market Optimism on the Trade Truce Continue?


Dec. 4 2018, Updated 3:35 p.m. ET

Points of contention remain

The trade war between the US (QQQ) (IVV) and China started with a view on trade imbalances. However, the trade war escalated and includes more far-reaching and strategic issues like technology transfers, intellectual property rights, and China’s (MCHI) ambitions of marching up the value chain in key strategic industries. The hope that China would give up on its ambitions and quickly open up its markets to foreign companies is wishful thinking. Market participants have been debating how the trade issues can be resolved.

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Not enough details

The markets are confused about the negotiation details. One of the big questions is who will lead the trade talks with China during the truce. As we discussed in the previous part of this series, there are gaps between the trade agreement and the two countries.

Optimism is fading

The US markets (SPY) (DIA) rose on December 3. Caterpillar (CAT), Deere (DE), and AGCO (AGCO), three of the world’s largest manufacturers of agricultural equipment, rose more than 3%, 4%, and 4%, respectively. The optimism seems to be fading. The Asian markets weren’t as optimistic on December 4. The markets need to see more details and specifics to be optimistic about a trade deal. The markets want to be sure that this isn’t just a short-term relief rally that could escalate after the 90-day period.


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