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US-China Deal Close or Giant Smokescreen Ahead of Elections?

James Hyerczyk
There is also a report circulating that says President Trump is interested in reaching an agreement on trade with Chinese President Xi Jinping at the Group of 20 summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms.  

U.S. equity markets are surging during the pre-market session early Friday on comments from U.S. President Trump indicating a trade deal with China may be in the works. Investors started to take notice of the deal on Thursday when Trump tweeted that he had a “long and very good conversation” with Chinese President Xi Jinping on trade.

The President then went on to say in his U.S. morning tweet that trade “discussions are moving along nicely”.

There is also a report circulating that says President Trump is interested in reaching an agreement on trade with Chinese President Xi Jinping at the Group of 20 summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms.

The Greater China markets jumped higher on the reports. At 0612 GMT, Hong Kong’s Hang Seng Index is trading 26316.13, up 900.13 or +3.54%. China’s Shanghai Index is at 2667.46, up 61.22 or +2.35%. South Korea’s KOSPI Index is at 2089.60, up 65.14 or +3.22%.

U.S. futures markets are also picking up strength with the Dow futures trading nearly 200 points higher. At 0616 GMT, December E-mini S&P 500 Index futures are trading 2757.75, up 19.75 or +0.72%. December E-mini Dow Jones Industrial Average futures are at 25518, up 193 or +0.76% and December E-mini NASDAQ-100 Index futures are trading 7120.50, up 43.75 or +0.64%.

Some analysts are skeptical over the timing of President Trump’s tweets and whether there is even a deal in the works. One analyst told CNBC’s “Street Signs” that the timing “feels a little bit too coincidental” given that midterm elections stateside are a few days away.

The gains in the market overnight indicate that investors are buying into the idea that a deal is close. Given that talks between the U.S. and China have recently stalled and China’s unwillingness to make major concessions, today’s news is a surprise and may have caught short-sellers by surprise.

Today’s news may be spooking the short sellers enough to aggressively cover their positions. Buyers may actually be stalling their buys until after today’s U.S. Non-Farm Payrolls report. The combination of aggressive short-covering and fresh money hitting the market has put the U.S. stock market on a strong path to recover most if not all of its recent losses.

However, keep in mind there are mid-term elections coming up on Tuesday so this could all be a giant smokescreen. Given today’s strong moves, investors will be disappointed come Monday if something more concrete than a couple of tweets from the President hinting at a trade deal isn’t announced.

This article was originally posted on FX Empire

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