US-China trade talks and Brexit dominate agenda

Trading has been very tense so far this week, with algos and market participants reacting to every single US-China trade-related headline. Index futures and gold moved sharply overnight on the back of a media report that trade talks had collapsed, but before long it was back to square one as it was dismissed. The markets continued to push higher during today’s regular trading hours, with the Dow up around 600 points from its overnight lows.

What to expect from US-China trade talks

Evidently, it looks like investors are positioning themselves for a potentially favourable outcome in trade talks. Donald Trump tweeted that China wanted to make a deal, but kept investors guessing as to whether he would agree to any arrangement.  At best, we may get a partial deal with both parties agreeing to stop raising tariffs on each other and hold further talks to discuss things on which they cannot immediately agree on – possibly topics such as currency manipulation and intellectual property theft. Will this be enough to send the US stocks markets to new highs? I am doubtful.  But with the possibility of talks potentially ending without any agreement, are the markets getting too ahead of themselves already? Are investors setting themselves up for disappointment?

Brexit hopes boost pound

Also boosting risk appetite and the pound was a joint statement released by the UK and Irish governments regarding Brexit. UK Prime Minister Boris Johnson and Taoiseach Leo Varadkar of Ireland have had a “detailed and constructive discussion” and both “agreed that they could see a pathway to a possible deal.”

How to trade during these times

Things could change quickly on both trade and Brexit fronts. Watch out for headlines citing “sources” that could come out at any time, particularly during questionable periods – for example when the cash markets are closed late in the day, before Asia gets underway. Traders should pay a lot of attention to their stops – tightening them as and when the markets allow. They should also not overstay their welcome in these choppy conditions, as things can turn around very quick. So, stay nimble, as we are expecting more headline-driven moves to come. Reporters will be quick to publish the latest news with high-level talks between the US and China having started.