North American Stocks Stall as U.S./China Trade War Tensions Rise

Despite signs that the U.S. economy is slowing and concerns about a global recession, North American stocks have rallied to record levels in 2019, fuelled most recently, by stronger than expected third quarter results.

But the run of record closes on the TSX, NASDAQ, NYSE, S&P 500, and Dow Jones Industrial Average recently hit a road block after fears that an expected trade deal between the U.S and China may not be completed until 2020. On top of that, the U.S. senate passed legislation regarding pro-democracy supports in Hong Kong that raised the ire of Beijing.

How Are Trade Negotiations Going Between the U.S. and China?

It’s been difficult to get a handle on where exactly the trade negotiations between the U.S. and China are going. In fact, sentiment changes on an almost daily basis, with the stock market rattling investors.

In mid-October, President Donald Trump provided the first phase of a deal intended to end its long-suffering trade war with China and suspend a proposed hike in tariffs on approximately $250 billion worth of goods.¹

At the time, President Trump said phase one of the deal could take up to five weeks. He also warned that an agreement could fail to materialize, but he was confident it wouldn’t.

Fast forward six weeks and phase one of the trade deal has stalled. Right now, negotiators in Washington, D.C. and Beijing remain deadlocked over some key issues.

China’s President Xi Jinping is looking for Washington to walk back on more of its tariffs while President Trump has responded in kind, looking for more concessions. When reporters asked Trump how the trade negotiations were going on November 20, Trump said, “I don’t think they’re stepping up to the level that I want.”²

Not the vote of confidence investors were hoping for, with all the major indices falling from record levels. By the end of the day, the S&P 500 had slipped 0.38%, the Dow Jones Industrial Average was down 0.4%, the NASDAQ was off by 0.51%, and the S&P was essentially flat. The markets fell even further on Thursday and Friday.

Defensive plays like gold was up 0.11% at $1,472.70 per ounce and silver ended the day at $17.11 per ounce.

What Legislation Did The U.S. Senate Pass That Upset China?

Tensions between the world’s two largest economics took another hit after the U.S. Senate passed legislation that supports pro-democracy protestors in Hong Kong. If passed, the bill requires the U.S. State Department to determine at least once per year, that Hong Kong, a major economic hub, remains autonomous enough from China to allow it to keep its special trade status with the U.S.³

If the U.S. discovers that China has violated internationally recognized human rights, the legislation allows President Trump to impose sanctions on individuals, which includes Chinese officials.

The unanimously passed legislation did not go unnoticed in China. Geng Shuang, a Foreign Military spokesperson said, the bill “applies double standards, blatantly interfering” in China’s affairs. He also said, “China will have to take strong countermeasures to defend” it’s national sovereignty should the U.S continue to make “the wrong decisions.”⁴

Clearly, this bill will further complicate ongoing trade negotiations between the U.S. and China. This could also see North American stocks correct from their record levels.

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Canadian and American stocks have notched up numerous new highs in November. But ongoing tensions between the U.S. and China with regards to the ongoing trade war, a crackdown on pro-democracy protestors in Hong Kong, and the fact that President Trump could veto any agreement at any time, are putting this record bull run in jeopardy. The trading experts at Learn-To-Trade.com can show investors how to profit no matter what happens between the U.S. and China.

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Sources:

1. “S. outlines ‘Phase 1’ trade deal with China, suspends October tariff hike,” Reuters, October 11, 2019; https://www.reuters.com/article/us-usa-trade-china/u-s-outlines-phase-1-trade-deal-with-china-suspends-october-tariff-hike-idUSKBN1WQ10X.
2. Timmons, H. “A U.S.-China ‘phase one’ trade deal may not be inked this year,” Yahoo! Finance, November 20, 2019; https://finance.yahoo.com/news/phase-one-u-china-trade-175440835.html.
3. “1838 – Hong Kong Human Rights and Democracy Act of 2019,” U.S. Congress, November 19, 2019; https://www.congress.gov/bill/116th-congress/senate-bill/1838.
4. “Chinese Embassy in US,” Twitter, November 19, 2019; https://twitter.com/ChineseEmbinUS/status/1196968102237523968/photo/1.