Market Response to the Trade War Truce Was Below Expectation?

The Sino-U.S. trade war has become the focus of the market since it broke out, and the escalating situation year to date has drawn investors attentions. Although the scheduled tariff raise was postponed twice, as the trade negotiations continue to deepen, the market generally believes that the tariff decision launched on December 15th will be a turning point in the Sino-US trade war. For China and the United States as global powers, the trade war is actually a “lose-lose” situation, so both sides are also trying their best to reach an agreement and inject confidence into the market.

On December 13th, only two days left before the scheduled tariff increase (December 15th). China and the US finally reached a trade agreement after many rounds of negotiations and dialogues. The two sides also confirmed that no new tariffs will be added to each other on December 15th after reaching the first phase of the trade agreement, while lowering some of the existing tariffs for the first time. This signals a thaw of China-US economic and trade relations and easing of the trade frictions.

Investors sighed in relief on Monday(December 16th) after the 15th, and the stock market surged higher while Treasury Bond yield also increased. On the other hand, the currency market responded only moderately to the news. Though some currencies like USD/JPY closed higher, AUD/USD and NZD/USD didn‘t meet the market’s expectation as both closed unchanged. The point is the current agreement is more like a ceasefire to some extent, while uncertainties remain for the future. The phase one agreement has been reached

through a quite bumpy process, with several details still to be refined. According to US Treasury Secretary Steven Mnuchin, the phase two trade deal may come in stages, which is why the market has been prudent. Investors are worrying that this part of the deal is reversible, while phase two can be another tough battle. Analysts noted that amid the Feds cautious outlook, report of weak retail sales and a slumping Empire State Manufacturing Survey on Monday, the dollar still faces major risks of downdraft.

As 2019 comes to an end and 2020 approaches, the forex market changing rapidly as always, and WikiFX will continue to release more forex market trends and updates. For more information, please visit WikiFX official website, App or Facebook page.