Expectations Dwindling Ahead of Trade Talks
The next round of US-Sino trade negotiations began yesterday today in Washington and there is a palpable sense of nervousness in the markets with benchmark indices and WTI all trading lower. The hesitation among traders is linked to a story from the South China Morning Post which reported sources saying that preliminary, deputy-level talks which took place ahead of these meetings, failed. The talks were aimed at establishing the ground-work ahead of the minister-level talks commencing today. However, negotiations stuttered as Chinese officials refused to discuss the issue of forced technology transfers which has been a key flashpoint for the US. According to the source, although talks are only just getting underway, the Chinese delegation is already planning on cutting the visit short by one night.
News of the preliminary talks having failed is putting additional pressure on this the 13th round of trade talks with US tariffs on $250 billion of Chinese goods due to increase from 25% to 30% next Tuesday. Optimism ahead of the talks has been blunted over recent days as tensions have started to creep higher once again. The US government blacklisted 28 Chinese companies this week which it judges to be “implicated” in human rights abuse. Furthermore, the US has added additional visa restrictions on Chinese government officials.
The issue of the US having blacklisted 28 entities will certainly pose a challenge to the talks. While the majority of the entities blacklisted are government security bureaus, leading artificial intelligence firms are among the eight companies listed. The new restrictions mean these companies will have no access to US microchips.
The latest US action marks the government response to the ongoing Chinese security operation in the far west Xinjang region which the US deems to be an issue of human rights abuse. However, China has responded saying that the visa actions and blacklisting are based on “made-up pretexts” to allow the US to interfere in domestic Chinese affairs.
"Mini-Deal" Hopes
Expectations ahead of today’s meetings have been largely tied to the prospect of “mini-trade deal”. Given the wide-ranging economic damage which has occurred as a result of the ongoing trade war between the two leading global economies, many are hopeful that the two sides can now make the first step towards ending the trade war. However, with the US still taking measures against China and with China refusing to give way over its demands that tariffs be removed, the risk of talks collapsing remains high.
If talks do collapse again, the fear is that we see a fresh outbreak of retaliatory actions from both sides. The US has another batch of tariffs due to hit Chinese goods in December and with the ongoing diplomatic row over alleged Chinese human rights abuse, the prospect of more aggressive Chinese action is high. The idea of restricting access to rare earth’s exports had previously been mentioned and if Chinese firms are denied access to microchips, we could see this threat materialising.
Technical & Trade Views
S&P500 (Bullish, targeting 3031)
S&P500 From a technical and trade perspective. Price has rolled over gain since Tuesday’s IndeX files update, however, view remains bullish looking for an eventual push higher towards the monthly R1 at 3031. Price is potentially creating a higher-low against the bullish trend line, with momentum studies showing room for a move higher. This consolidation could continue a while longer though an eventual break higher is my preferred view. Will reassess if the trend line is broken.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!