US/China Trade Talks Have Markets On Edge

Trade War Or A New Age Of Trade

Trade talks between China and the US are underway in Washington, D.C. The talks, aimed at ending the possibility of trade war between the two super-powers, got off to a shaky start as comments from President Trump and rumors of strife within the US delegation made headlines. Trumps comments, that he’s not sure the talks will succeed, are nothing more than blather, and likely intended to misdirect the media. Rumors of strife within the US delegation are another matter. Secretary of State Steve Mnuchin is said to have problems working with senior trade adviser Peter Navarro, a well-known and outspoken China-hawk.

While it is certain the talks, and headlines stemming from them, will continue to drive volatility within equities, forex and commodities markets it is also certain the two nations need each other. With this in mind traders can expect to see a positive resolution to the talks, the question is when that resolution will be reached and what it will be.

The US equities markets tread water over the past week as traders eye the US/China talks as well as an expected conclusion to the NAFTA renegotiation. The S&P 500 created four small candles in a row, all to the side of each other in near-term consolidation, and appears to be forming a bull-flag. This flag, if completed, would be a trend-following move that could lead to an extended rally over the next few week’s. The indicators are a bit mixed in their message but are both consistent with consolidation within a rising market. A move up would confirm both the pattern and the indicators, bringing targets near 2,840 into play.

The US dollar advanced strongly against the euro over the last week as positive US data reinforces the idea of FOMC policy tightening and political unrest in Italy sparks fear in the EU. The pair has moved down to a new 6 month low but is beginning to look overextended while approaching a support target. The indicators are consistent with falling prices but a divergence in MACD momentum suggests support will not be broken.

Oil prices drift upward on signs of market tightening and fear the Iran sanctions would add downward pressure to stockpiles. Brent crude topped $80 for the first time in nearly 4 years while WTI traded above $72. The black gold could easily continue rising in the near term, the risk is that outlook for 2018 is well supplied markets and the charts look a bit extended. Resistance is now at $72 and that is confirmed by lingering divergence in the MACD which suggests market impetus is running out.