Risk is failing to get a lift despite the optimism from US-China trade this week
Recent developments on the trade front has been positive this week and that has helped equities find a bit of stable footing over the past few days. In case you missed it, here were some of the positive developments that transpired:
- China said to plan first batch of US soybean purchases
- China is said to plan more US soybean purchases as soon as today
- China drafting replacement for Made in China 2025 plan - report
- China is said to move on US car tariffs cut that Trump tweeted on earlier
- White House to officially delay China tariff hike to March
On the front of it, China is making good on the alleged agreement that was struck between Trump and Xi at the meeting in Buenos Aires at the start of the month. But despite the positive sentiment here, there are many lingering worries still for stocks as we close out the year:
- Global growth worries continue, weak Chinese data like the ones today won't help
- US yield curve inversion still leaving an outside risk of a recession to come
- Huawei case casting a bit of doubt on the outlook of trade relations
- US still looking to come down hard on Chinese IP theft
Those are among some of the worries faced by investors at the moment and on the balance of things, there are reasons for investors to be bullish and afraid at the same time. E-minis are trading by about 0.7% lower on the day currently and Asian equities are also brought down on the back of weaker sentiment here.
The aussie and kiwi in particular are hit the hardest in the currencies space as Chinese economic data disappointed once again, which highlights that the slowdown faced by the Chinese economy may be worst than feared. Those concerns will fester over time and moving forward, expect each data disappointment to continue to bring forth worries that the global growth slowdown is gathering pace.
The final major event as we close out the year for risk is the FOMC meeting next week. The Fed is still very much expected to hike rates despite markets pricing in a ~74% probability currently (usually it is a slam dunk probability of >95%). But it will be all about the language that the Fed sends out with regards to rate hikes next year. With markets already having to balance out the events above, the Fed's message could very well be the one to tip the scales for any Santa Claus rally to take place in risk as we close out the year.