A slim chance of a trade agreement between China and the USA is still a chance – Market Analysis

By: Miguel A. Rodriguez

09:45, 14 September 2020

Diplomatic relations between the US and China improve slightly

The representatives of the United States and China have decided to gather in mid-August to review the agreements reached at the beginning of the year on the so-called Phase 1 of the trade agreement between the two. 

Both delegations have stated that this meeting is an opportunity to eliminate the friction that has emerged throughout the pandemic, which has been an element of considerable uncertainty for investors. They are willing to return to the friendly climate prevailing at the signing of this agreement. 

There are undoubtedly significant elements of confrontation such as the Hong Kong issue, the prohibition of the activities of the Tik-Tok technology in the United States, or the management of the pandemic by China. 

Still, everything indicates that the will to approach is high. It is quite possible that there has been a change in political strategy by Trump and that from now on, he will not use the confrontation with China as an electoral weapon. If so, it would remove a considerable obstacle in the rise of the stock markets, not only in the United States but in the rest of the world.

US Corona help package

Another positive news is the progress in negotiations between the two American parties on the coronavirus relief package. Although they continue to say that positions are set apart in some sections, members of both parties have said they are moving in the right direction and an agreement is expected to be reached later this week and approved early next

This agreement, together with the improvement in trade relations with China, would be a very relevant factor in changing investors' mood towards an enormous appetite for risk and, therefore, an essential boost for the stock markets.

US stock índices

Markets have reacted positively to this news, albeit with only modest gains so far, awaiting confirmation.

USA500 is advancing with new highs in recent months and is heading towards the all-time high of 3,397, a level that could exceed if geopolitical conditions improve and if the fiscal stimulus package is approved.


USA30 lags somewhat behind the other indices given that in its composition, the technological stocks, which have had the best performance, carry less weight.


The index has first intermediate resistance at 27048 and another at 27627, the highest level reached in June. 

Equally, suppose the geopolitical situation ceases to be a drag, and the economic data on domestic consumption and employment continue to improve. In that case, USA30 should move towards its maximum historical levels, once the indicated resistance has been overcome. 

In this sense, the publication of the ADP Non-farm employment data has disappointed market expectations with a significantly lower figure than expected. However, the revision of last month's upward data compensates for this loss. 

More important will be Friday's Non-farm Payroll figure, on which all eyes on the market will be focused. 1600k new non-farm jobs are expected, any number equal to or higher than this would be positive for the markets.

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