May 29, 2020

Trump China News May Not Break Stock Rally

Trump China News May Not Break Stock Rally

The U.S. futures are trading lower as tensions continue to anchor between the two major superpowers: the U.S. and China. Beijing has defied all U.S threats, and it has made it clear that China is going to have more control over Hong Kong because of a new Security law.

Donald Trump, the U.S. president, appears poised to sign measures against China that would spur tensions further. He wants to punish Chinese officials for imprisoning over one million Muslims in internment camps and for what he calls China’s non-cooperation in response to coronavirus. This has made investors cautious and the majority of investors likely to continue to shave some profit from their recent gains.

The Dow Jones’s futures are trading lower by nearly 100 points. This calls into question whether this sell-off will push the major US indices back below their critical levels? For the Dow Jones, it is 25K, and for the S&P500, it is 3K. Yesterday, the U.S. stocks suffered decent losses. The Dow Jones dropped by 0.58%, while the S&P500 declined by 0.21%.

Despite this flare in geopolitical tensions, we have not seen any significant sell-off for the Asian indices. This makes one wonder if investors are completely overlooking this massive threat or if this geopolitical event isn’t strong enough to shake investors out of the equity markets. It’s noteworthy that Hong Kong’s stock index, the HSI index, is still above its 50-day simple moving average—a sign that shows that bulls are still in control of the price. Chinese Shanghai Index hasn’t shown any signs of weakness as well.

In fact, both the S&P500 and the Dow Jones indices are set to close the week with decent gains. The S&P index is up nearly 2.51% so far this year, and the Dow Jones index has already triumphed last week’s gains, it is up more than 3.82%.

So, is the ongoing tensions between the U.S. and China a major issue, or could there be some other reason? Perhaps, the punishment that the U.S. president has been talking about until now may not amount to more than a slap on the wrist. If China does come back in retaliation —it most definitely will—it may be a similar mild reprimand.

Renault Announced Job losses

Stock in Renault, a French car maker, is going to be the primary focus among investors. The company has announced layoffs of 14,600 workers worldwide, with nearly 4,600 job losses in France, which will reduce its production capacity by nearly a fifth.

The strategy is designed to stop the cash bleed under the current circumstances. There is no denying that the automobile industry has been hit hard and if we are going to see a similar reaction from other carmakers such as BMW and Mercedes-Benz.

Twitter Trump Fight Over Minneapolis

As for social platforms, Twitter is likely to see another dismal price action today. The stock plunged over four percent yesterday after Twitter decided to fact check Trump’s tweets. In the latest instance, Twitter flagged a Trump tweet regarding the growing civil unrest in Minneapolis as promoting violence.

Under the current law, social platform companies such as Twitter and Facebook are protected from responsibility for their users’ posts. However, Trump signed an executive order calling for a new law, citing freedom of speech concerns. This order threatens the liability shield that companies like Twitter currently enjoy.

The new law is likely to be challenged in court and the outcome of the decision will determine the future of freedom of speech and also of Twitter. But one thing is for certain, the stock is likely to remain highly volatile because it jumped over one percent in the U.S. after-market session yesterday.