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US-China trade talk glimmer
President Donald Trump’s tweet interjecting at the conclusion of day 2 of talks with China, citing “talks with China are going very well” and being described as ‘eager’ to achieve a deal had perhaps been the most bullish signal for the talks yet. Accordingly, we have certainly seen equities taking the hint as US indices rallied for a third consecutive session since worries of Apple revenue hit. Concern for the event risk appeared slight as well, as the bulls kept the rally through the late afternoon and into the end of the session, showing strength in the conviction.
While politics had long been a key driver for equity markets, we could be reaching the apex should a deal be finally achieved between US and China. At the margins, however, the likelihood remains in question for what had been a long-drawn dispute that saw several rounds of tariffs kicking in place. That said, as with the G20 meeting, an establishment of further working interest or even agreements on certain key contentious issues would pave the way for a substantial market rally. As far as volatility is concerned, high hopes for the talks have driven down the S&P 500 index’s implied volatility, or the VIX, to sit just above 20.0. The VVIX, CBOE VIX volatility index, sliding to trade at over 1-year low levels likewise back the reduction of the rumbles within markets. Look to the statement that would be due for confirmation of progress in US-China ties after Wednesday’s conclusion in Beijing. The time remains undefined at present, though with US delegates expected to leave Beijing this afternoon, odds are that we could be seeing it during Asia hours. One to watch.
President’s primetime address
Meanwhile, making waves back home surrounding the government shutdown remains as President Donald Trump who will address the market at 9pm eastern (10am HKST/SGT). Expectations are for the President to pitch the border wall cause on primetime TV as worries mount on the impact from the partial shutdown disruption towards the economy. As far as markets are concerned, we are talking greenback weakness, should insistence on the border wall funding arrives and US-China trade thaw materializes. Looking at the US dollar index, measured against six major currencies, the downtrend may well sustain and the likes of AUD/USD perhaps one to trade the outcome.