US markets rally as Trump teases trade war progress imminent
28 Oct 2019
America’s stock markets have all made gains so far today following multiple hints from President Trump and the Chinese commerce ministry that ‘Phase One’ of a trade deal is effectively complete.
The S&P 500 is the standout market, up half a percent in trading currently at 3,037 points; just shy of the 3,041 point all-time record it set earlier in the session.
The combination of the US/China trade war progress, as well as Microsoft landing the new Pentagon cloud storage contract, has provided fresh incentive for investors to press on with the stock market bull run and step away from the bullish gold market. Gold hit a peak of $1,508.25 this morning but has since fallen to $1,491.65 per ounce.
Today's gold price in US Dollars per ounce as the news about Phase One of the trade deal came through.
News of progress in the trade war isn’t too surprising: Last night the Chinese commerce ministry confirmed that Phase One was near completion, and today the US Trade Representative’s Office told reporters that headway had been made on key issues.
Inevitably President Trump has taken to Twitter within the past hour to boast about the S&P’s gains, but there are plenty unhappy with the president’s claims of success – one of whom is stockbroker and financial commentator Peter Schiff.
Because the U.S. economy is so weak, and your deficits are so large, the Fed came to the rescue by cutting interest rates and returning to QE, exactly what you criticized it for doing as a candidate. The big, fat, ugly bubble you criticized the Fed for creating is getting bigger!— Peter Schiff (@PeterSchiff) October 28, 2019
The Federal Reserve is due to make an announcement on Wednesday about its plans for interest rates, with many believing that rates will be cut in order to stimulate the US economy in the face of the global economic slowdown and the ongoing trade war.
This impacts gold in the short-term, as has been evident so far this afternoon. The expectation of interest rate cuts weakens the US Dollar, because investors sell their dollar-denominated assets to buy foreign assets. This offers a short-term benefit to lending, which becomes cheaper, meaning lower risk when lending to invest in the stock markets.
The benefits of this approach are short-lived however, and don’t mask the longer-term contraction of growth in an economy. This is why the gold price in Dollars is still very close to the $1,500 mark – demand is high despite the stock markets repeatedly setting new records in the past 18 months. Investors are more aware of the risks of a market collapse after the 2008/09 crisis and are more prepared; investment in stocks doesn’t mean no investment in gold or other safe havens.
For now, the US markets are enjoying a strong session, but any reneging on Phase One of the trade deal could easily undo today’s gains.