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Weekly Market Digest: Markets Rally on China Trade Progress

Progress toward a “mini-deal” with China spurred optimism, investor enthusiasm, and turned stocks higher for the week. The US and China appear to have reached an agreement which will increase Chinese agricultural purchases and agree to some intellectual property measures while the US will delay some pending tariff increases. Bond yields rose.

Weekly Returns

S&P 500: 2,970 (+0.6%)
FTSE All-World ex-US (VEU): (+1.9%)
US 10 Year Treasury Yield: 1.73% (+0.21)
Gold: $1,489 (-1.0%)
EUR/USD: $1.104 (+0.5%)

Major Events

  • Monday – The USDA said China increased purchases of soybeans in the final week of September.
  • Tuesday – US producer prices unexpectedly fell in September, possibly signaling a slowing economy but also giving the Fed further room for rate decreases.
  • Wednesday – Greece sold short term debt at a negative interest rate, signaling how pervasive low rates have become and how far the country has come in the last several years.
  • Thursday – OPEC cut its oil demand forecast for a third consecutive month.
  • Friday – President Trump said the US and China agreed to an outline of a “phase one” deal on trade, which would postpone planned increases on tariffs. Stocks rallied.
  • Friday – Mastercard, Visa and others removed themselves as partners of Facebooks proposed Libra currency.

Our Take: Where We’re at with China Trade Talks

Markets were pleased by an apparent agreement on trade with China which will postpone or eliminate tariff increases planned for October. The deal is said to include increased agricultural purchases by China as well as some concessions on intellectual property.

In our view, the overall conflict is really about intellectual property and technology supremacy, with tariffs and purchase agreements acting as bargaining chips. So while it is a positive that talks are showing some progress and the short term trend is now de-escalation, we don’t view Friday’s announcement as a sign that the risks from trade are significantly reduced. Issues related to Huawei Technologies are not part of the current agreement and will likely be more sensitive. The next round of talks is tentatively scheduled for November.

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