Equities see short-term rallies as ‘Phase 1’ of a USA - China trade deal looms on the horizon

December 6, 2019
“Success seems to be connected with action. Successful people keep moving. They make mistakes, but they don't quit”
― Conrad Hilton

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S&P 500 Gains Thanks to Trade Deal Rumors but 2020 Still Looks Grim

The S&P is down 0.9% for the week...but the losses seem to have stabilized for now, with the index gaining 0.63% at yesterday’s close. This boost comes as U.S.-China trade relations finally seem to be on the mend, with ‘Phase 1’ of a comprehensive trade deal said to be around the corner. But some strategists think that even if a trade deal is signed, 2020 may still not be a bullish year.

Is the long trade war finally over? It’s starting to look that way. At the very least, even potential human rights sanctions against China by the U.S. over labor camps in Xijiang province and Hong Kong protests haven’t deterred both sides from acting optimisticallythough the full deal still may be some years away.

Why will it take so long? U.S. President Donald Trump, facing impeachment in the U.S. legislature, and a tough re-election campaign, could seek to delay trade talk completion until after the elections are finished, as he’s threatened previously

If a trade deal is signed, even Phase 1, isn’t that good news for 2020? Usually it would be, but a big issue is the looming global recession and further political instability in the United States. Analysts at Morgan Stanley and others also believe that weak U.S. growth could hold back markets in 2020.

Wut We Think: U.S.-China is still dominating headlines, and anyone who had hoped that markets would be free of the trade war by now is disappointed. But that doesn’t mean that short-and-medium term good news is anything to scoff at – as long as the world manages to keep avoiding recession, markets will keep growing, and it will take some big news next year to shake off slow but steady gains.


Trade War Uncertainty Boosts Gold 15% This Year Alone

The precious yellow metal has fallen 0.65% over the past month...but the outlook for gold going into 2020 still remains strong. Gold is widely lauded as a safe haven, and it has already demonstrated those properties this year, as investors poured into gold and out of Asian and U.S. stocks. And there’s a good reason to think that this performance will continue in 2020.

Why are gold’s 2020 prospects so bullish? One reason is the continuation of the trade war, as well as a flurry of mergers and acquisitions among gold miners as this year closes out. Both point to more positive expectations for gold in 2020.

But is there any bearish sentiment? The bear’s trains of thought are currently focused on treasury yields – treasuries and gold have long been linked – and analysts say that if the U.S. manages to continue avoiding recession and push out positive economic news, then treasury yields will go up. Both of these combined will continue to put downward pressure on gold.

Some traders are hoping for really explosive prices: Some people recently bought call options betting that gold will reach $4,000 by 2021 – and while that sort of meteoric tripling in price is unlikely, it does point to a resurgence of optimism for the asset class.

Wut We Think: Good news from the U.S.-China trade war is going to bring gold prices down, but not by much – even if a Phase 1 agreement is signed, another combative tweet from Trump could send investors running back to gold in a heartbeat. Short-term, traders are most likely going to dither around the current price of $1,475, until developments either in the USD price or the trade war cause markets to move once more.


Trading Spotlight: Treasuries

Treasuries, or more specifically, U.S. Treasuries, are a key influencer on global markets as a whole, with U.S. Treasury bond yields often being used as a metric to predict or notice an incoming recession. Bond yields play a direct role in determining stock market behavior and are essential to understand for a complete picture of the health of financial markets. The 10-year bond yield, in particular, is used by banks to set mortgage rates.

U.S. Treasuries: Treasuries refer to three separate but related debt instruments issued by the U.S. government: bonds, notes, and bills. All three have different maturation, ranging from 30 years for bonds, to four weeks for bills. The most commonly cited yield is the 10-year Treasury note. As Treasuries are government bonds, they are considered to be extremely safe and stable instruments and are widely held for both tax purposes and as a safe haven.

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