Pre-markets are rocketing up well into the green to kick off a new week of market trading, following the G20 Summit in Buenos Aires over the weekend that saw a major agreement between the U.S. and China regarding trade policy. Instead of new crippling tariffs of 25% hitting goods after the first of the year, Presidents Trump and Xi have agreed to what amounts to a 90-day truce regarding trade policy between the world’s two largest economies.
Whatever one’s thoughts on Trump’s approach to dealing with China, it’s abundantly clear that his administration has called China to account on trade policy in a way we have never seen since China’s emergence as an economic super-power. Especially with the employ of trade-war hawks like Trade Policy Director Peter Navarro and U.S. Trade Representative Robert Lighthizer, Beijing has had no choice but to take the U.S. seriously on trade issues. China currently looks very motivated not to take the next step down the trade war path, which by itself is a win for the Trump administration.
For sure, a mere 90 days is not likely enough time to put behind us some of the biggest issues on the table, such as Intellectual Property usage and its intertwining with global high-tech industries. In fact, some of these rifts come down to long-established cultural differences that with take much longer than until the end of February next year to iron out. Thus, look at this Buenos Aires dinner meeting as simply an important first step in a new normalization of trade policy.
Until some of the details related to this normalization become apparent, and maybe even upon their discovery, markets should continue to their relief rally. Currently, the Dow is expected to open up more than 400 points, making clear that much of the trepidation market participants had been feeling since early October have been related to trade war anxiety. Now that the acuteness of this anxiety has been alleviated — even without first needing to chart progress in this 90-day window — we could see a strong end to the calendar year of stock trading.
Of course, this also opens up a new perspective on what we might expect from the Federal Reserve, especially considering its upcoming meeting (beginning two weeks from tomorrow) where it is widely expected another 25 basis-point rate hike will be forthcoming. Whether we see language consistent with last week’s speech from Fed Chair Jerome Powell that the benchmark interest rate in “just below” neutral, or whether an augmented outlook emerges will also be worth looking at.
For now, however, there is more than just the holiday season as an excuse to pop some champagne. Happy Monday!