Trump Gives Mixed Messages On China

Trump Keeps His Cool

As the G7 meetings in Biarritz drew to a close yesterday, the market was buoyed by some late optimism from President Trump.

Only a few days after describing Chinese Premier Xi as an “enemy”, Trump seemed to reverse his approach entirely. In his latest comments, the US President referred to Xi as a “great leader” and expressed his confidence that the US and China will be able to strike a trade deal soon.

The two nations have been engaged in tit-for-tat trade tariffs since January 2018. And, despite efforts over Q1 of 2019 to negotiate a deal, talks broke down in May. This led to a fresh outbreak of trade tariffs over the recent months.

However, negotiators from both countries are due to meet in September for a further round of talks. Thus, the market is doing its best to remain optimistic.

China Imposes Fresh Tariffs – Trump Reacts

Nevertheless, the situation remains incredibly volatile. On Friday, China imposed a fresh set of tariffs on the US in retaliation for its recent batch of levies on Chinese goods.

In reaction to this, Trump said that he had begun instructing US companies to leave China. Speaking on Sunday, Trump referred to the Chinese leader as an “enemy” of the US and said that he could force US companies to cease operating in China.

Following criticism for his comments, including complaints that Trump would not be able to follow through on his threats, Trump took to Twitter to say:

Given the escalation in tensions around these comments, the market breathed a sigh of relief to see Trump moderating his tone on Monday to tell reporters:

“We were called and we’re going to start very shortly to negotiate. We’ll see what happens, but I think we’re going to make a deal. This the first time I’ve seen them where they really want to make a deal.”

VP Liu Calls For An End To The Trade War

Chinese Vice-premier Liu also helped boost optimism once again in his speech. Liu stated:

“We are willing to resolve the issue through consultations and cooperation in a calm attitude and resolutely oppose the escalation of the trade war. We believe that the escalation of the trade war is not beneficial for China, the United States nor to the interests of the people of the world.”

For now, the market waits tentatively to see if trade talks will start up again in September. However, it willlikely have to navigate more spontaneous outbursts and contradictory headlines in the meantime.

Technical Perspective

The waiting game ahead of the next set of US-China trade talks, as well as the wait-and-see game with the Fed, has created a state of limbo in the SPX500 over recent weeks.

Amidst quiet summer trading conditions, the index has been oscillating between the 2825.30 level support and resistance at the 2931.44 – 2951.63 level, which also saw the retest of the broken trend line from 2018 lows. For now, the range continues while these levels remain intact. However, an eventual topside break appears likely given the increased expectations of further easing from the Fed. That being said, there are downside risks and any breakdown in trade talks could quickly see a jolt down to 2730.43 next.