While many market participants were focused on new developments in the US-China trade war, the Dow Jones Industrial Average rose on Friday, closing higher for an eight-day rally that proved to the the longest winning streak in a year. The improving sentiment in markets is driven by several factors but the upcoming US-China trade talks, suggested by the participants to be positive, is of course the main point. The Dow finished its session on Friday only 0.7 percent below the intraday record high of 27,398.68 – the S&P 500 was also near its all time high as well.
The trade war was clearly a market mover in August, with some tweets from President Trump having powerful directional impact – note that the so-called defensive sectors, which have been in vogue recently amid trade and recession fears, have unwound this week. China is now said to, according to an report in the New York Times, be willing to exempt US agricultural products, including soybeans and pork, from additional tariffs.
The US welcomed the China stance on renewed purchases of American farm goods, with President Trump saying it was expected that Beijing would purchase “large amounts” of agricultural products. Trump said he would consider an interim trade deal with China. The equity market rallied on this news and it led to a massive sell-off in US sovereign bonds with the benchmark 10-year Treasury yield shooting up more than 30 bps this week to around the 1.89% from the 1.57% level.