China’s Olive Branch Diminishes Trade War Tensions

Today the Chinese commerce ministry spokesman Goa Feng said that his government would not respond to the latest tariffs imposed by our current administration. Goa Feng said, “Escalation of the trade war won’t benefit China, nor the U.S., nor the world.”

According to Bloomberg News “Gao’s remarks came amid signs China’s economy slowed further in August as weak domestic conditions. The downshifting is evident in a Bloomberg Economics gauge aggregating the earliest available indicators from financial markets and businesses.”

The United States earlier this month announced new tariff rates on $300 billion worth of Chinese imports into the United States. These tariffs are set to go into effect in September and December of this year. This action prompted the Chinese government to retaliate last week with an announcement of their intent to implement higher taxes on imports from the United States.

Today’s statement by the Chinese commerce ministry spokesman is a 180° pivot from recent reactions and statements by the Chinese. This news dampened the fears that the trade war between the United States and China was escalating. The net effect of this announcement was that stocks in Asia, Europe as well as the United States turned bullish, once again returning bullish sentiment for the risk on asset group.

The NASDAQ composite gained 116 points, which is a net increase of almost
1 ½%. The Standard & Poor’s 500 gained 36.64 points which is a net gain of 1.27%. The Dow Jones industrial average gained 326.15 points (1.25%) in trading today taking the index to 26,362.25.

This also had an inverse effect on the safe haven asset class taking both gold and silver dramatically lower. Although both of the precious metals recovered slightly just prior to the close moving off of the intraday lows each of these metals sustained approximately an 0.80% price decline today. Gold futures settled down $12.40 at $1536.70 after trading to a low of $1528.60. Silver futures basis most active September Comex contract lost $0.143 and settled at $18.175 recovering from the intraday low of $17.985.

The real question is whether or not statements today were the first signs of the Chinese government blinking as they signaled a much more accommodative stance resolving the trade war. If so, it is a solid indication that the Chinese economy has pressed the negotiators to look for a resolution to the trade war. The answer to this question will only be answered over time.

Wishing you as always, good trading,