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Dow Triumphs Despite Partial Deal Fallout as Insiders Argue China is Positive

Last Updated September 23, 2020 1:09 PM
Joseph Young
Last Updated September 23, 2020 1:09 PM

The stability of the Dow Jones following the release of a Bloomberg report claiming China is not ready to sign a phase one trade deal indicates that the markets believe otherwise.

“Scoop from my colleagues in Beijing: China isn’t ready to sign what Trump calls the “phase one” deal without more talks later this month. Beijing also wants commitments prior to signing that the next round of U.S. tariffs, scheduled for Dec. 15, is off,” said Bloomberg News trade reporter Jenny Leonard .

In contrast to recent reports,  including from Chinese media and local journalist Hu Xijin, the editor-in-chief of the Global Times, the “real” attitude of the Chinese government regarding a trade deal remains neutral.

Dow Jones
The Dow Jones Industrial Average dips a paltry 0.1% on Monday as markets held in a stable range. | Chart: Yahoo Finance

Since the 300-point upside on Oct. 10, the Dow Jones Industrial Average has more or less flat-lined, as investors prepare for highly anticipated earnings reports from key sectors such as finance and technology later this week.

China is not less positive; Dow Jones maintains momentum

On Oct. 10, U.S. President Donald Trump and Chinese Vice Premier Liu He emphasized that it is in the interest of both countries to strike a trade accord that lessens the impact of tariffs on the global market.

For Trump, a comprehensive trade deal can sustain the strong momentum of the Dow Jones and the U.S. economy heading into next year, establishing optimistic sentiment around the 2020 presidential election.

For China, an all-inclusive agreement alleviates pressure on the nation’s slowing economic growth, as figures for imports and exports in September fell  worse than expectations.

As such, Xijin noted that it is the habit of the Chinese government to maintain a moderate tone until a final agreement is signed, but it does not imply that China is not satisfied with the current progress of the trade talks.

Xijin said on Twitter :

“Based on what I know, China-US trade talks made breakthrough last week and the two sides have the strong will to reach a final deal. Initial statement of the Chinese side is moderate. This is China’s habit. It doesn’t mean China’s real attitude is not positive.”

Slump of consumer confidence may make a deal more appetizing for China

The price trend of gold, which often reflects the short term trend of the global economy, has geared to the upside for the majority of 2019 due to mounting geopolitical risks.

Declining demand for gold and other safe haven assets, alternative stores of value, and bonds could show that investors are more optimistic about stocks.

However, in regions like China, South Korea and Japan where most of the gold consumption comes from jewelry purchases, the decline in the appetite for gold may suggest a gloomy forecast for the economy.

In China, the consumption of gold and jewelry is set to drop  by 4% by the year’s end, suggesting that consumer confidence is dwindling, making a larger trade agreement with the U.S. all the more favorable  for Beijing.

Precious Metals Insights managing director Philip Klapwijk says:

“The perspective now, particularly looking at the jewelry market, is moderate growth over the longer run, rather than the sort of massive growth you saw in the past when people were opening stores like crazy. The pace of that growth isn’t going to be what it used to be.”

As the Dow stabilizes with only a small pullback after a large single session gain on Friday, the short term trend of the U.S. stock market is expected to improve, especially as Chinese media reiterates the position of Beijing on the trade talks.