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Did Trump Save the Markets with His Trade War Truce?

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Did Trump Save the Markets with His Trade War Truce?

 

As traders, it’s always important to keep our eyes open for any economic or political developments that could impact the market. And when it comes to these events, it seems that President Trump’s name appears quite often. 

 

Most recently, Trump’s trade war with China that has caught the attention of traders. Tariffs on Chinese goods have been increased sharply for months, and Chinese technology companies like Huawei have been targeted by the US government.

 

The question right now is how the trade situation will proceed in the second half of 2019. Although it is undisputed that Trump was the man who started the trade war, could he also be the one to end it?

 

Impact on the Asian economy

The ongoing trade war and the tariffs that have been imposed are continuing to impact the economy of not just China, but also many other Asian countries. 

 

While countries like Vietnam, Bangladesh, Thailand, and Malaysia that are home to low-cost manufacturing hubs are relatively secure from the impact, high-growth economies, such as South Korea, Singapore, Taiwan, and Hong Kong are not as lucky. The state of these economies is likely to impact China’s position in any trade war negotiations.

 

Early June saw China laying down the foundation for an agreement and advocating a negotiation that’s fair for both nations. Thereby, China rejected a deal that favoured the US’ position, and punitive duties on Chinese products were imposed as a result.

 

Negotiation re-opens

Finally, Trump and Chinese president Xi Jinping have agreed to resume talks, and just completed what has been described as a “constructive” meeting at the G20 Summit in Osaka, Japan.

 

Despite the constructive meeting, which ended with a “truce,” the trade war is unlikely to get resolved any time soon. In fact, Bank of America believes that while a deal could be reached by the end of the summer, there’s also a chance that another round of tariffs may be imposed before an agreement is finalized.

 

Trump needs a positive step toward re-election

There’s still a year left before Trump is expected to run for president again. However, campaigning has already begun, and Trump’s administration needs to start fixing things if it hopes to get re-elected. 

 

Ending the trade war with China will improve the chances and, due to China’s current position, the United States could very well strike a deal that would be in their favour.

 

Expectations for Q3 2019

To the relief of those who are holding Chinese Yuans, the US dollar/Chinese Yuan rally appears to be taking a breather for now, possibly caused by mixed news from the Chinese media after the Trump-Xi meeting in Osaka. 

 

However, the current consolidation and slight reversal phase comes after a period of sharp sell-off in the Yuan during the month of May. In addition, the current power play and Trump’s composure could indicate a rise in USD sentiment back to the 6.94-6.92 range that has been prevalent over the recent months.

 

These are certainly exciting times not just for the forex market, but for the entire world economy.

 

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