Dow futures slogged to moderate gains on Sunday, indicating that investors remain relatively upbeat about the partial US-China trade deal but are also cautious about whether this minor agreement will lead to more meaningful developments in the ongoing tariff war.
Dow Futures Point to Minor Columbus Day Gains
Shortly after the markets opened on Sunday evening, Dow Jones Industrial Average futures (YM=F) had gained 29 points or 0.11%, implying gains of 35.41 points from Friday’s close at 26,816.59.
S&P 500 futures and Nasdaq futures also pointed to minor gains, with the two contracts rising 0.09% and 0.13%, respectively.
Goldman Sachs: Trade War Tensions Could Flare Back Up
Optimism surrounding “phase one” of the proposed US-China trade agreement helped the Dow spike more than 300 points on Friday, but analysts warn that the specifics of that limited deal mean very little for markets if the two sides fail to address thornier issuers that were swept off the table in the latest round of negotiations.
As Goldman Sachs warned in a new report, this isn’t the first time that Washington and Beijing have shaken hands on a trade war cease-fire, but none of those reprieves have led to a sustained de-escalation in tensions.
Quite the opposite, they said:
“Short-lived pauses in trade tensions have in the past given way to renewed escalation rather than a roll-back of the trade war,” a team of strategists including Zach Pandl wrote. “If anything, disagreements have spread to more dimensions — technology, financial flows, immigration and foreign policy — such that finding ramps to de-escalate is even harder.”
Consequently, the Goldman analysts expect the offshore yuan to drop as far as 7.2 against the US dollar within the next six months. USD/CNH closed at 7.0868 on Friday and has weakened considerably since US-China trade talks unexpectedly broke down in May.
Similarly, Morgan Stanley advised clients to view the partial trade deal with skepticism, along with the assumption that suspended US tariffs will eventually go into effect.
“There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk,” the bank said in a note. “Thus, we do not yet expect a meaningful rebound in corporate behavior that would drive global growth expectations higher.”
Stock Market Schedule for Columbus Day
Monday, Oct. 14, is Columbus Day, but unlike on many other federal holidays, US stock exchanges will maintain regular trading hours.
That said, Columbus Day is a bank holiday. Financial institutions facilitate a significant percentage of foreign exchange volume, so reduced forex liquidity could have a minor impact on the stock market.
Like banks, Bond markets will remain closed until Tuesday.