U.S. & China Agree Trade Truce
The first face-to-face meeting between President Trump and his Chinese counterpart Xi Jinping of 2018 has taken place at the G20 summit in Argentina. Forex markets have been looking ahead to this and the outcome of the talk has brought some good news which is likely to have some impact when markets open later today. However, the outcome is not exactly a big surprise, so the market impact is likely to be quite limited.
The leaders agreed that no new tariffs would be imposed over the next ninety days, providing a breathing space within the current trade war. President Trump had been threatening to raise the existing 10% tariff, which has been applied to approximately $200 billion worth of Chinese exports to the U.S., to 25%. In return, China has agreed to purchase an as-yet unspecified but “very substantial” amount of U.S. goods. It is hoped that as the ninety-day armistice will allow for talks between the two nations, they may be able to come to a more substantial agreement within that time.
So, what does this mean for financial markets? It is likely to give at least a small boost to the U.S. stock market, which has sold off in fits over recent months whenever bad news about the trade war with China has arrived. The timing for this looks good, as on Friday the benchmark S&P 500 Index came very close to closing above its 200-day moving average for more than two weeks.
As for the Forex market, the impact here might be felt most in making the Australian and New Zealand Dollars more bullish, particularly the Australian Dollar, as it is typically reliant upon a good Chinese export situation. The Australian Dollar has already gained noticeable against a relatively strong U.S. Dollar over recent weeks, and this development may help to push it even higher.