Dow Preps Positive Open After China Trade Deal ‘Cacophony’

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The Dow Jones is expected to open with a gain of over 50 points in anticipation of a new round of trade talks in October between the U.S. and China.

The Dow Jones is still near its record high despite lagging progress in the trade talks
The Dow Jones is still near its record high despite lagging progress in the trade talks (source: Yahoo Finance)

While the tension between the U.S. and China has intensified in recent weeks following the imposition of additional tariffs by both sides, some strategists expect the next round of trade talks to lead to a “breakthrough.”

Why a breakthrough is crucial for the Dow

Hu Xijin, the editor-in-chief of Chinese and English editions of the Global Times, who has mostly portrayed a negative stance towards the progress of the trade talks throughout 2019, said that the probability of a breakthrough between the U.S. and China has increased.

He said:

“China and the US announced new round of trade talks and will work to make substantial progress. Personally I think the US, worn out by the trade war, may no longer hope for crushing China’s will. There’s more possibility of a breakthrough between the two sides.”

Strategists believe that the progress of the trade talks are now mostly priced into the markets and minor developments are unlikely to sway the Dow Jones and equities markets in the short term.

A comprehensive deal, however, could affect the global equities market even in the short term as it would substantially decrease geopolitical risks in the global economy amidst rising uncertainty.

Economy remains strong, say analysts

Earlier this week, Citigroup rates strategist Bill O’Donnell emphasized that despite the consistent inflow of negative headlines, the U.S. economy has shown strength as of late as seen in its labor market and the performance of the Dow Jones.

“One thing that is very clear to me in the midst of all of this cacophony of headlines is that there is absolutely no indication that rates are set to rise from here. Right now stocks are still not far from their record highs, the labour market looks to be in really solid condition and the US economy is still doing fine,” stated O’Donnell.

The Dow Jones, considering the day’s implied 50-point increase, is near its record high, which indicates a relatively strong equities market in spite of the noticeable increase in demand in the bond market.

With the August jobs report showing that the labor market of the U.S. is still on an upward trajectory, the sentiment around the Dow Jones and the global equities market is expected to improve in the upcoming weeks.