It’s Like Day and Night

It’s not about nuance, it’s not about the subtleties of trading, rather it’s about a 24-hour market in which traders witness polar opposites in terms of market direction and sentiment.

Today, for example, is a clear illustration of how markets can turn on a dime and reverse course, all in the span of a single trading day. In overseas trading last night, the Dow Jones Industrial Average plunged about 500 points which carried over into New York when equity trading returned to the United States.

At the same time, gold futures traded higher to an intraday high of $1,352.50, gaining $14 before reversing. By the time trading had closed in New York, gold futures (June 2018 Comex contract) had given up most of these gains and are currently trading at $1,337.60, up $0.30 on the day.

These volatile price swings began when China announced additional retaliatory tariffs on more than 106 U.S. products.

As reported by The Guardian, “Chinese state TV is reporting that 106 U.S. products are affected, including a 25% tariff on soybeans, automobiles, and chemicals. In total, the goods affected are worth $50bn per year.”

These reports were echoed in the South China Morning Post last night. It was said that Beijing wasted little time in the firing back at Washington’s latest trade action by unveiling plans to slap additional 25% tariffs on a range of goods in imports from the U.S. These include soybeans, cars, and planes, as the world’s two largest economies edge even closer towards an all-out trade war.

China’s Ambassador to the U.S., Cui Tiankai, said that China “will respond to any new U.S. tariffs on Chinese products with countermeasures of the same proportion and intensity.” These remarks revealed, during an interview with state-owned China Central Television, a proportional response to the tariffs levied on China.

It’s now about posturing. Like a peacock unfurling its feathers, the U.S. and China are conveying strength, as each side builds the most robust hand possible before any negotiations take place.

This morning President Trump tweeted his rebuttal to China’s additional tariffs. “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, and people who represented the U.S. Now we have a trade deficit of 500 billion a year, with intellectual property theft of another 300 billion. We cannot let this continue.”

This tweet was followed by a statement by incoming economic advisor to the White House, Larry Kudlow, who said, “I don’t think people should overreact right now. This is a negotiation using all the tools.”

These statements from the current administration seemed to calm the market and initiate a reversal where a dramatically lower Dow closed up 200 points, and gold futures gave up gains realized in overseas trading to close unchanged on the day.

Wishing you as always, good trading,