Holiday Volume Begins and Traders Wait for Clarity on Trade War

There is no doubt about it, volume is thinning out as the holiday season closely approaches. Today for example volume in gold futures is sitting at 173,253 contracts. That is just a small percentage of the large volume witnessed in November which would average about 300,000, and on November 7^th actually spiked to 678,673.

Add to that a wait-and-see attitude as traders and market participants await detailed text on the recently completed phase-one component of a comprehensive trade deal between the United States and China. Although both countries have announced that they are in agreement over principle regarding the issues they plan to cover during this first part of a comprehensive trade deal, besides stating that China would purchase much more agricultural products from the United States very little is known. Also, as of this date there has been no announcement on a date in which it will be signed.

According to a Reuters report yesterday Larry Kudlow, a top White House adviser said on Monday predicting US exports to China will double under the deal. He also said that the phase-one agreement between the United States and China has been “absolutely completed”.

The statements were in contrast to statements made by Ralph Kaplan, the president of the Federal Reserve Bank of Dallas who said the phase-one agreement does not mean tensions are going to fully dissipate any time soon.

Which brings us to when the two superpowers will agree and enact a comprehensive trade deal which covers not only tariffs and imports/exports, but more importantly an understanding on China delivering fair compensation for technology gained from the United States.

Any comprehensive deal will take some time, and according to the president of the Federal Reserve Bank of Dallas, Robert S Kaplan the trade war will take years not months to complete.

In an interview with Bloomberg TV he said, “Phase-one is better than not having a Phase-one but it doesn’t mean there won’t still be trade uncertainty. I think the trade issues with China are going to go on for...years.”

Kaplan also argued that while he expects the economy to grow about 2% next year, inflation pressures are likely to remain benign because businesses are not able to pass higher pricing along to clients. He cautioned that the current administration’s strategy to use tariffs as threats to mold his foreign-policy against multiple countries will create an ongoing and unknown certainty.

The truth of the matter is we are far from resolving the complex issues that must be tackled between China and the United States. This is not an issue that will be resolved this month, this year, or next year. While it is important to note that President Trump was the first to attempt to tackle the trade imbalances, many questions his use of a stick rather than a carrot. That being said whether you support the current president or not it is in all of our best interests to hope that he is able to accomplish the task.

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Wishing you as always, good trading,