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Stock Markets Recover after China Indicates It is Still Interested in Reaching a Deal with the U.S.

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By the end of trading on Monday, stocks recovered most of their earlier losses following a report that a Chinese delegation would still visit the U.S. as was earlier indicated. Trade talks between Washington and Beijing are therefore set to continue on Wednesday. This news had a positive effect on the stock market.

The Dow recovered almost all of the 471 points it had earlier lost ending the day at only 66.47 points down. The S&P 500 and Nasdaq also recovered from a 1.2% and 2.2% trade down during their lows. Additionally, individual stocks such as Disney, Chevron, and McDonald’s traded higher, recovering from their earlier losses. Stocks that were affected the most during the trade down were trade-sensitive industrial and tech names such as Caterpillar, Deere, and Apple.

Stocks had taken a plunge following pronouncements by President Trump over the weekend that he would increase tariffs on Chinese imports. The president announced on his Twitter handle that tariffs on $200 billion of Chinese imports would increase to 25% up from 10%. He also threatened to impose a 25% tariff on another $325 billion of Chinese goods.

President Trump also accused China of trying to renegotiate the terms of the deal saying this is why progress had been too slow so far. On Monday, he added that the U.S. had been losing between $500 billion yearly to China in the past and said he would not allow this trend to continue. Consequently, there were concerns that the Chinese would call off trade talks with the U.S.

However, analysts believe that what happened over the weekend is posturing by both camps. As such, both countries want to reach a trade agreement given a protracted trade war would not be beneficial to either side. President Trump seems to be using pressure to force China into making a move. On the other hand, the Chinese are sending over a smaller team than was initially expected, including Vice Premier Liu, showing China is still interested in reaching a deal.

Analysts say that both countries are looking to make a deal because they are both recovering economically. The U.S. economy is showcasing signs of improvement as indicated by its super-strong report for jobs in April. The Chinese economy is also showing signs of stabilization following a monetary and fiscal stimulus campaign.

All eyes are therefore on China’s next move since it will determine the way forward with the talks. If Vice Premier Liu does not show up in Washington for the negotiations, the U.S. will most likely implement the 25% tariff hike. However, if President Xi calls President Trump directly, the tariff hike may not be applied.

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