For the first time in 3 months, the Chinese stock market has recorded a 3 percent increase triggered by the optimistic prospect of a comprehensive trade deal. The Dow Jones is nearing the 26,000 point mark after initiating a strong rally in the past two weeks.
The solid movement of the CSI 300 Index, which replicates the performance of top 300 stocks in the Shanghai and Shenzhen stock exchanges, has shown that investors in Asia highly anticipate the trade talks with the U.S. to see significant progress in the weeks to come.
The Dow Jones recorded a 1.3 percent rise on February 17 and is en route to breaking out of the 26,000 point level for the first time since November.
Dow Jones Rally Expected, Analysts Say Trade Deal Fears are Exaggerated
With jobs growth and household balance sheets at record highs, the U.S. is arguably in a better position than China in any given time frame.
The growing number of defaults in China has placed more pressure on the domestic market and the authorities to achieve a deal with the U.S.
A full-scale trade agreement is crucial for both countries in the short-term as it would alleviate significant pressure from the Chinese economy and strengthen the rally of the Dow Jones and the U.S. stock market in general.
The stock market of China and the rest of Asia are recovering in a period during which the outcome of the trade deals remains uncertain.
The Trump administration has publicly expressed its intent to consider a 60-day extension on the March 1 deadline, a move that could destabilize major markets.
However, the Chinese market has rebounded strongly in the last 24 hours, demonstrating the growing confidence of investors in the prospect of the ongoing trade talks.
Baird vice chairman for equities Patric Spencer said that the fear around the result of the trade talks has been overblown. With the newly adopted patient approach by the Federal Reserve, the executive stated that the market is in a decent place to maintain its momentum.
“The market has been worried about the China tariffs but Trump wants a deal and a lot of the fears are generally overblown. The more patient terminology from the Fed has been fairly accommodative for markets so far.”
Recently, as Admisi strategist Marc Ostwald said, investors have begun to focus on the positives over potentially negative factors that could lead the stock market to the downside.
Similarly, Direxion Investments managing director Paul Brigandi said last week that investors in the U.S. market have been trading based on momentum and the strong performance of the Dow Jones.
As such, if the trade talks with China continue to show progress in certain areas, the near-term rally of the Dow Jones and the rest of the U.S. market could be sustained.
“Momentum is a key component right now. A lot of people are jumping in to get on board,” he said.
Some Difficulties in the Trade Talks
The stalemate in the trade discussions with China seems to derive from the requests of the U.S. on fundamental changes to the structure of the Chinese economy.
The U.S. government has reportedly asked Chinese negotiators implement significant changes in the country’s industrial policies.
Despite the speed bump in the U.S.-China trade talks, the optimism stems from the intent of both countries to move forward with the discussions without imposing additional tariffs or restoring previous tariffs.
Most of the positive movements in the stock market of the U.S. and China are fueled by the certainty of investors that while the trade deal could be pushed beyond the original deadline, the two countries are not in a rush to impose higher tariffs in the short-term.