The ongoing economic dispute between the US and China, referred to by the media as the ‘Trade War’ appears to be continuing as it has done for 2019, with no true end in sight. The cyclical movements in markets and also the news media regarding the Trade War is now practically predictable.
This predictability has caused one user of the popular online message board Reddit, to create a helpful chart for determining what stage of the trade war cycle markets are currently reacting to:
The latest news has been that the US and Chinese officials have agreed to meet to discuss a resolution in October. The implication of this is that previous talks had stalled. Regardless, this latest small bit of news was enough for markets to start recovering, but if no progress is made in October, it is likely that we will move to the next cycle of the above chart.
Whilst it seems likely that markets would wake-up to such a cycle, and therefore break the cycle – this doesn’t appear to be the case. Never was this more obvious than late in August where Trump stated that he had spoken with Chinese officials, and that they’d agreed to meet to discuss a resolution. However, this was denied by the Chinese and a few days later US officials admitted that the call was at least partly made-up. Regardless, markets did rally on the news, and even continued to rally after the reality was clear.
Stock markets may have taken solace in the fact that Donald Trump is willing to go to extreme lengths to support prices, but it nevertheless seems very much a case of “buy the rumour”.
In the time since, Chinese and US trade officials have actually agreed to meet in October; a fact confirmed this time by both sides. They have met plenty of times previously over the past 24 months as well, with the worlds two largest economies no closer to a truce; investors are therefore hoping that this won’t be another case of “selling the fact”.
Regardless, with no real end in sight, the Reddit user’s chart is the pattern to go by, which suggests that the trade war will cycle on.
Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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