11 Oct

Trump Reignited Trade Deal Hopes, Dow Futures Rose

WRITTEN BY Mike Sonnenberg

On Thursday, US and Chinese negotiators wrapped up the first day of trade deal talks in Washington DC. Notably, U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer led the US delegation, while Vice Premier Liu He represented China. President Trump told reporters that “We had a very, very good negotiation with China.”

Markets react to trade deal hopes

Most markets around the world celebrated the news. In Asia, Hong Kong’s Hang Seng was the biggest winner with a 2.3% gain today. Mainland China’s Shanghai Composite closed 0.9% up today.

In Europe, Germany’s DAX rose 1.76% at 5:19 AM ET, while France’s CAC rose 1.12% at the same time. However, Britain’s FTSE 100 was trading marginally up due to concerns related to the pound’s strength.

US index futures rise due to trade deal optimism  

In the US, the S&P 500 futures rose 0.9% at 5:20 AM ET. Dow Jones futures mimicked the S&P 500 futures’ trajectory. Nasdaq futures were the biggest winner among the three with a 1.09% gain at the same time.

Crude oil futures rose 1.76%, while Treasury futures were subdued. Positive economic sentiments hampered monetary easing hopes.

Since White House officials shared President Trump’s optimism, we might see positive action today. President Trump will meet with China’s Vice Premier Liu He.

What to expect today 

Reuters said that there could be an announcement regarding a currency agreement between the US and China today. In return, the US will likely delay the October 15 tariff hike.

Some broader and core issues might be left for future negotiations. There’s a clear divergence from President Trump’s previous focus on a big trade deal. Since core issues aren’t part of the trade talks, the trade war is here to stay.

Stocks in focus

Any better-than-expected news on the trade war front could boost stocks with a focus on China.

On Thursday, Apple (AAPL) regained another digit in its valuation due to trade deal optimism. Any good news today will likely boost the stock and keep everything else constant. Apple manufactures most of its products in China. The tariffs scheduled for December 15 will impact the cost of assembling Apple’s iPhones and MacBooks.

Semiconductor stocks will likely get a boost from positive news about the trade deal. China is the largest market for companies like Qualcomm (QCOM), Micron (MU), and Broadcom. In fiscal 2018, US component makers including Qualcomm, Micron, and Intel generated $11 billion in revenues from Huawei, according to Reuters. Qualcomm, Broadcom, and Micron generate most of their revenues from China.

Chinese companies listed in the US might benefit from trade deal optimism. Alibaba (BABA), which closed 0.53% higher on Thursday, rose 2.16% in pre-market trading at 5:18 AM ET. The delisting concerns that haunted Alibaba and other Chinese companies will subside with even a mini trade deal. Alibaba planned a second listing in Hong Kong to break its reliance on the US for public capital amid the raging trade war.

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