Weekly Market Digest: The Trade War Takes Center Stage

This week, U.S. equities moved higher, quietly hitting all-time highs on hope that a “phase 1” trade deal with China could be nearing completion. But the week was filled with twists and turns, and on Friday President Trump even commented that the U.S. hasn’t yet agreed to rollback tariffs, somewhat dampening the broader sense of optimism. Foreign stocks also ended higher, while gold and bonds were both down.

Weekly Returns

S&P 500: 3,093 (+0.9%)
FTSE All-World ex-US (VEU): (+0.8%)
US 10 Year Treasury Yield: 1.94% (+0.21%)
Gold: $1,459 (-3.6%)
EUR/USD: $1.102 (-1.3%)

Major Events

  • Tuesday – Reports surfaced that the U.S. and China are considering removing some of the tariffs as part of a “phase 1” deal.
  • Tuesday – Iran stated it would increase work at its underground Fordow nuclear facility in response to U.S. sanctions.
  • Tuesday – German factory orders increased more than expected in September, while France posted better-than-expected economic growth.
  • Wednesday – The IMF issued a warning to Europe that downside risks are severe, and that fiscal stimulus could be necessary.
  • Wednesday – Media reports claimed the expected trade meeting between the U.S. and China could be delayed until December.
  • Thursday – China officials commented that both them and the U.S. tentatively agreed to rollback tariffs in stages if the “phase 1” deal is reached.
  • Thursday – Two former Twitter employees were charged with spying for Saudi Arabia by the US Justice Department.
  • Friday – President Trump stated that the U.S. has not yet agreed to rollback tariffs in a “phase 1” deal.

Our Take

The trade war with China once again took center stage, offering another rollercoaster week of news for investors. This week’s focus was the potential “phase 1” deal. We first caught wind that tariffs could be rolled back when (and if) a deal is reached. Markets rejoiced, but quickly turned south when news surfaced that a deal could be delayed until December. Equities jumped again Thursday when additional reports seemed to confirm the tariffs were on the chopping block, but this was followed by comments from President Trump that a rollback is not guaranteed.

So, what do we think about this news? This is just more of the same. The trade war has been a major driver of volatility for almost two years now. And any news, either positive or negative, can create knee-jerk reactions in the market. At this point the deal seems to be centered around agricultural purchases in exchange for a pause in tariffs.

This would certainly be a step in the right direction, but it wouldn’t solve the more material issues such as forced technology transfers and intellectual property theft. Either way, no one really knows what such a deal would include until it actually happens. And there’s no guarantee it will happen. So do your best to tune out the noise—the trade war isn’t going to magically disappear. It will likely remain a driver of volatility in the months ahead.

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