US stocks seem set to rise into uncharted territory as markets appear confident the phase-one US-China trade deal is going to happen. The White House seems set on dominating the headlines going into the weekend with a plethora of optimistic tones that progress being made. As traders prepare for the weekend, the S&P 500 continues to hang around the July 26th closing record.
Fresh record highs will likely be supported if we continue to see positive steps taken in the trade war between the two world’s largest economies and if we don’t see the Fed deliver a hawkish cut next week.
The biggest risk to his mini-trade deal however remains if Congress comes through on delivering on a threat to Hong Kong’s special trade status with the US. Hong Kong is pivotal to China’s connection to the global financial system and if the US goes down this road, we could see a complete collapse in trade talks. Hong Kong is a key center for raising equity and for debt deals to get done. We should expect the Trump administration to avoid focusing on Hong Kong as this could derail the chances of any deal getting done before the election, and more importantly revitalizing recession concerns.
All trade updates leading up to the November 16-17th APEC summit should maintain an optimistic tone.
The general consensus is that the Fed will cut rates at the October 30th meeting, but the question everyone wants answered is if they will be done for a while. A growing risk is that the Fed could come close to saying they are done for a while, as they look to mirror the playbook in the 1990s that saw them deliver three cuts to keep the economic expansion going. If the Fed delivers a hawkish cut, as long as they leave the door open for more cuts, we still could see stocks continue to grind higher. A rate cut, with a wait-and-see on their recent stimulative measures could be the best case for US stocks.
While trade and Brexit risks have eased, they are not going away anytime soon. The global outlook will likely remain vulnerable due to bevy of geopolitical risks and we should eventually see the market pricing in anywhere between two and three more Fed rate cuts in 2020.
Bitcoin prices spiked on what many are attributing to the expiration of call options, but the more likely reason is Chinese President Xi’s comment that China should “seize the opportunity” afforded by blockchain technology. China is committed to blockchain and Bitcoin will thrive. Despite the regulatory hurdles that will likely derail Facebook’s Libra, China seems set to grow the development of blockchain technology. It is very possible that we will see China lead the way for investment in the crypto space and until a better digital coin is offered, Bitcoin will blossom.
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