The Direxion Daily FTSE China Bull 3X ETF (NYSEArca: YINN) got lifted on Tuesday as news outlets were flush with mostly positive news on U.S.-China trade talks progressing in the right direction. As the rest of the stock market toiled over volatility, YINN was up over 3 percent.
The Dow Jones Industrial Average climbed over 200 points on Tuesday on renewed optimism that a permanent trade deal between the United States and China was progressing based on a Bloomberg report that China would slash the current 15 percent tariff on cars to 40 percent. Based on the report, the proposal to pare down the tariff would be reviewed by the Chinese Cabinet in the coming days, but it has yet to be finalized and is subject to change.
Nonetheless, the news was interpreted by the capital markets that talks between the two economic superpowers are progressing. In addition, the news of the tariff cut was paired with U.S. President Donald Trump tweeting that talks with China are moving forward and that “important announcements” were forthcoming.
Very productive conversations going on with China! Watch for some important announcements!
— Donald J. Trump (@realDonaldTrump) December 11, 2018
Meanwhile, the White House is delaying a second round of payments on a $12 million package that benefits farmers negatively affected by the tariff-for-tariff battle between the U.S. and China, particularly soybean farmers. The delay comes as the U.S. hopes that a trade deal will materialize or further negotiations result in China resuming their purchase of U.S. soybeans.
A delay is certainly viewed as favorable by President Trump’s Office of Management and Budget at the White House who cite the aid program as a costly venture that could be allayed if a trade deal is struck between the two economic superpowers.
“It has been no secret that OMB has not been terribly excited about the trade aid package,” said a source familiar with the matter.
The major indexes have been racked by volatility in recent sessions as the reality that a tangible and permanent trade deal is necessary has been settling in with investors. The probability of reaching an agreement didn’t improve after news broke that Meng Wanzhou, the CFO of Huawei, one of the world’s largest mobile phone makers, was arrested in Canada and faces extradition to the U.S.
As such, the markets have been reaching for any time of media olive branch thrown its way in the form of positive news.
“It is important for the market to get positive headlines at this time,” said Quincy Krosby, chief market strategist at Prudential Financial. “This is sustainable if we don’t hear a contradiction. This has been part of the problem. The algorithms work instantaneously and if we get someone with an opposing view we could turn around.”
Last week, the capital markets breathed a sigh of relief as President Trump and Chinese president Xi Jinping agreed to cease fire on their tariff-for-tariff battle, giving the markets hope that a year-end rally could ensue.
However, the market boost was short-lived as the truce didn’t quell investor fears as markets fretted on the notion that a trade deal can only materialize after lengthy discussions between the two economic superpowers. Furthermore, contentious topics like forced technology transfer and intellectual property could derail negotiations.
However, if trade negotiations continue to progress to a point where a final, tangible trade deal with permanence is the byproduct, then YINN traders will obviously feel the benefits.