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Dow Paralyzed as Markets Reject Vacuous US-China Trade Deal Hype

Last Updated September 23, 2020 1:18 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:18 PM
  • The stock market traded flat on Tuesday.
  • The top US & Chinese trade negotiators spoke this morning about the phase one agreement.
  • Investors aren’t convinced those talks will produce anything of consequence.

The Dow traded flat on Tuesday, struggling to grind higher after joining the S&P 500 and Nasdaq in record territory one day earlier.

Investors digested more positive news on the trade war front, but today’s market paralysis suggests that investors believe the hype is fundamentally vacuous.

Dow Struggles After Joining S&P 500 in Record Territory

dow jones chart, stock market
The Dow traded flat after broaching new highs on Nov. 25. | Source: Yahoo Finance 

The US stock market’s three major indices ranged near record levels this morning.

After closing at a fresh high on Monday, the Dow Jones Industrial Average sought to extend its rally. But shortly after the open, the Dow had lost 13.27 points or 0.05% to nudge down to 28,053.2.

The S&P 500 and Nasdaq also secured new all-time highs on Nov. 25, and they clung to those levels on Tuesday. The S&P 500 dipped 2.05 points or 0.07% to 3,131.59. The Nasdaq declined 2.77 points or 0.03% to 8,629.72.

The sustained equities rally has battered the gold price, which now languishes near a three-month low. Gold lost another 0.2% on Tuesday, settling at $1,454 .

Stock Market Doesn’t Take the Trade War Bait

Though awash in China-dependant stocks, the Dow Jones ignored the latest indication that the US and China remain committed to prioritizing a “phase one” trade agreement .

Earlier this morning, Chinese Vice Premier Liu He spoke with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. According to China’s Ministry of Commerce, the phone call went well, and the two sides “reached consensus on how to solve related problems.”

“Both sides discussed resolving core issues of common concern, reached consensus on how to resolve related problems (and) agreed to stay in contact over remaining issues for a phase one agreement,” the Chinese-language statement said, according to CNBC’s translation.

Unfortunately, markets have seen this movie before, and with a trade deal mostly priced into the Dow and S&P 500 , investors may be angling for something a bit more concrete.

Wall Street is particularly concerned about the looming Dec. 15 tariff hikes, which are now less than three weeks away. President Donald Trump has talked a hawkish game, but will he follow through on his threat if that deadline arrives  without a trade deal?

“Key is what happens if we do not get a deal by 15 December,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, told Bloomberg. “Will the U.S. agree to suspend the tariffs out of goodwill?”

Equally concerning are reports that even if a phase one deal arrives, it’s not likely to be followed by a “phase two” agreement  that addresses the issues that sparked the trade war in the first place.

Powell: The Glass Is ‘More Than Half Full’

Trade talks may dominate the headlines, but Tuesday also brings a handful of US economic data releases.

With the manufacturing sector beginning to regain its footing, analysts may pay the most attention to the Conference Board’s Consumer Confidence Index  reading, which will help Wall Street measure Main Street’s temperature as the holiday shopping season arrives.

federal reserve chair jerome powell weighs in on us economy
Fed Chair Jerome Powell said that the US economy’s glass is “more than half full.” | Source: REUTERS/Jim Young/File Photo

Last night, Federal Reserve Chairman Jerome Powell expressed optimism about the state of the economy , indicating that the central bank’s three interest rate cuts had helped the expansion successfully navigate a period of uncertainty.

“At this point in the long expansion, I see the glass as much more than half full,” he said. “With the right policies, we can fill it further, building on the gains so far and spreading the benefits more broadly to all Americans.”

Powell suggested that interest rates will likely remain at present levels for the foreseeable future, and traders largely agree. As of this morning, Fed funds futures imply no rate changes until at least July 2020, when the odds of a rate reduction tick up to 50.6%.