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Market Overview

Trump, Xi Phone Call Boosts The Market

Trump, Xi Phone Call Boosts The Market

Global stocks surged Tuesday following news that President Donald Trump and Chinese President Xi Jinping will be meeting to discuss trade at the upcoming G-20 summit at the end of the month.

What Happened

On Tuesday, Trump tweeted that he and Xi had a productive phone call and agreed to meet.

“Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting,” Trump posted at 8:39 a.m. Tuesday.

Why It’s Important

The trade war has been an albatross for investors this year. After a red-hot start to 2019, the SPDR S&P 500 ETF Trust (NYSE: SPY) dropped 5.6% and the SPDR Dow Jones Industrial Average ETF (NYSE: DIA) dropped 6% in the month of May after the U.S. and China exchanged yet another round of tariff hikes.

Chinese stock prices were hit even harder, with the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) falling 8.8% last month.

Investors are rightfully concerned about the breakdown of U.S.-China trade relations given how much business U.S. companies do with China. As of 2017, prior to the ramping of the trade war, China was the largest American trading partner, accounting for more than $635 billion in annual trade.

Most trade war headlines since early May have been negative, suggesting a trade deal was not imminent.

Trade uncertainty has negatively impacted investor and consumer sentiment, but Tuesday’s news that a G-20 meeting is on the horizon and trade talks between the U.S. and China have resumed is a positive step in the right direction.

“The United States wants to continue the conversations about structural changes regarding intellectual property theft and forced technology transfers and market openings and tariffs,” White House economic advisor Larry Kudlow told Fox on Tuesday.

“We’re looking for an enforceable agreement as we always have — that’s absolutely vital. So all of those general topics will be on the table.”

What’s Next

Investors will be watching for details on how trade talks are progressing leading up to the G-20 meeting, which starts June 28. In addition, they will be eagerly awaiting details on how the meeting plays out in light of the several prior breakdowns in trade negotiations between the U.S. and China in the past two years.

In the meantime, investors will be paying close attention to language from the Federal Reserve this week. The Fed is expected to make its announcement on interest rates at 2 p.m. Wednesday.

Related Links:

Supply-Side Economist Arthur Laffer To Receive The Presidential Medal Of Freedom

Understanding US-China Trade Negotiations: The Ultimatum Game

White House photo by Shealah Craighead. 


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