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Has the Trade War Truce Bonhomie Fizzled?

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Dec. 4 2018, Updated 8:52 a.m. ET

Trade war truce

After the meeting between US President Donald Trump and Chinese President Xi Jinping, the United States and China decided on a temporary truce. There won’t be any new tariffs for the next 90 days, and the two countries will continue negotiations to sort out their differences.

Equity markets rallied on expectations of some traction in US-China trade talks after months of deadlock.

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Market reaction

The S&P 500 Index (SPY) rose 1.09% on December 3. After a weak start to the month, broader markets witnessed a rally in the last week of November on optimism over US-China trade talks. Technology stocks, which fell sharply in the last couple of months, also witnessed significant upward price action yesterday. Amazon (AMZN) and NVIDIA (NVDA) rose 4.8% and 4.0%, respectively, while Apple (AAPL) rose 3.5%.

Meanwhile, global markets were in the red today. While risk sentiments improved after the G20 meeting, there have been other pressing risks for markets, including a growth slowdown. As for trade talks, the two sides have agreed to a 90-day truce, which most observers say is not enough time to sort out their differences. Furthermore, the two sides have several issues to sort out—unlike other trade deals, for which the Trump administration’s focus has been to lower the country’s massive trade deficit.

Another sticking point between the United States and China (FXI) has been the pace of reforms that the United States is seeking from China. We’ll discuss this factor in the next article.

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