Risk assets are starting the week with a bid tone as traders respond to optimistic reporting around US/China trade negotiations. Chinese officials were in Washington at the end of last week and extended talks over the weekend in an effort to hammer out a deal by the March 1st deadline this week.
While little has been released regarding the details of the discussions, risk sentiment was buoyed by Trump’s comments on Twitter describing the talks as “very productive.”
Talks were reportedly extended to address issues such as changes to be made to China’s treatment of state-owned enterprises, subsidies, forced technology transfers, and cyber theft.
Trump Praises Progress Made in Talks
Once again, writing on Twitter late last night, Trump said that it was “a very good weekend for US & China” with both sides making “significant progress.”
Indeed, Trump went as far as to say that there could be “very big news over the next week or two” if negotiations go well. He added that he is open to meeting Chinese premier Xi Jinping if “additional progress” is made.
The biggest reaction came in response to Trump’s announcement that he had decided to extend the March 1st deadline to allow for further negotiations. Trump said:
“As a result of these very …. productive talks, I will be delaying the U.S. increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for U.S. & China!”
Chinese Stocks Explode
With the original March 1st deadline now extended, the increase of tariffs on $200 billion of Chinese goods from 10% to 25% will be postponed.
This should keep risk assets bid in the near term as the market awaits further details. Indeed, Chinese stock markets saw explosive rallies in response to the news.
The CSI 300 index saw its best single-day gain since 2015. Many stocks saw suspended trading after exceeding the 10% gain limit which is set by Chinese regulators to cap single day price moves.
Critics Speak Out Over Deadline Extension
While many welcomed the announcement, there are those, even within Trump’s own party, who are not pleased with the move. Senior White House economist Philip Levy, who served under George W Bush, said that postponing the deadline had pushed the negotiating odds in China’s favor, with the US losing leverage consequently.
The S&P is now testing the 2801.65 level resistance which was the early 2018 swing high. Above here, focus will be on the 2877.55 level which is the last key structural level ahead of all-time highs. To the downside, main support is sitting at 2604.37. However, we are only likely to see this level next if the market learns that talks over the weekend were unsuccessful.