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April 12, 2019

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Wall St keeps tabs on trade talk progress

THE US stock market has closely followed developments of China-US trade talks, and investors and traders have priced in the fact that the dispute would be cracked step by step, veteran analysts have said.

However, although Wall Street rallies on “each little bit of headway” the two sides make, “we’ve come to grip with the fact that this is not going to be over in one day,” cautioned Matthew Cheslock, a veteran trader at the New York Stock Exchange.

Since last year, US-China trade issues have been a key influencer on the three major US indexes, with investors keeping a close eye on the world’s two largest economies.

“With all the discussions about what is moving the market, the China story ... is one of the most significant things affecting the market over the last year,” said Peter Tuchman, a senior trader at Quattro Securities.

He noted that individual stocks that have big Chinese exposure, such as US industrial manufacturing giant Caterpillar, are the so-called “big market movers,” which respond instantly to news regarding China-US trade talks. For example, US stocks extended gains last week, buoyed by investor optimism thanks to fresh progress made in the ninth round of US-China trade talks in Washington.

The two sides have discussed the agreement text on a series of subjects and achieved new progress, and decided to continue consultations through various effective means.

“Over the last six months, we’ve seen the market go up and down all around the information that we get. How much tariffs are gonna be?” said Tuchman. “How are things going to go forward?”

To many Wall Street observers, market participants are optimistic on the outlook for China-US bilateral talks, but also aware of the obvious uncertainty, which calls for caution.

“I think there’s going to be enough anticipation about people expecting a positive result. That’s why the markets have acted like they will,” said Cheslock, who is with Virtu Financial, a US high-frequency trading firm.

“But it’s not gonna happen in one day,” he added. “We’re gonna get this (in) little bits and pieces. But it’s important that they keep discussing and keep getting this negotiation done.”

Such cautious optimism was echoed by Mark Otto, an experienced trader at US electronic market maker GTS. “The market is telling us that it anticipates a positive outcome from the trade negotiations between China and the US,” he said. “There’s possibility that extended timelines would be needed regarding sensitive areas of discussion.”

Tuchman struck a more cautious tone, saying that the narrative on China-US trade talks have changed many times since October, making it hard to predict what is being etched in stone. “The discussion and the narrative with the White House that we have now are very indecisive,” he said. “So the discussion changes on a day-to-day basis, and the market responds accordingly.”

In a March report titled “The impact of the 2018 trade war on US prices and welfare,” economists from Columbia University, Princeton University and the New York Federal Reserve found that US consumers have borne the brunt. “The full incidence of the tariff falls on domestic consumers, with a reduction in US real income of US$1.4 billion per month by the end of 2018,” the economists said.


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