Based on the performance of the Dow Futures, the Dow Jones is expected to open at close to 27,000 points, swiftly reversing what could have been a steep downtrend in the U.S. stock market following the submission of an impeachment inquiry by the Democratic Party.
The Dow Futures soared after various reports suggested that the U.S. and China are set to hold trade talks on October 10, reigniting the sentiment around a potential partial trade deal with China.
Dow Jones has potential to reach record highs again
As said by strategists including Jim Reid at Deutsche Bank, the trend of the global stock market is currently heavily dependent on the direction of the trade talks between the U.S. and China.
Positive progress from the trade talks in October, which historically has been a needle-moving month for the U.S. stock market, could further fuel the momentum of the Dow Jones heading into 2020.
“The direction in markets at the moment is either dictated by trade, the impeachment drama or a combination of both,” said Reid.
An overall increase in the sentiment around the U.S. stock market and the recovery of the Dow Jones has led to a slight pullback in the safe haven market, as the prices of commodities like gold stabilized.
The decline in the demand for safe-haven assets in recent weeks compared to July and August indicate that investors are becoming increasingly confident in re-entering the stock market.
“Gold is smack bang in the middle of its longer-term $1,480.00 to $1,530.00 range. It looks set to remain anchored there for the session as markets await more big picture clarity,” said Jeffrey Halley, an analyst at OANDA.
The anticipation of a trade deal between the U.S. and China has risen noticeably as of late due to the slowing growth rate of the Chinese economy and the goodwill gestures demonstrated by both sides in pushing back the imposition of tariffs prior to the October trade talks.
At the U.N. General Assembly on Wednesday, U.S. President Donald Trump said that China wants to badly make a deal with the U.S., stating that a deal could happen sooner than investors expect, which if materialized, would reflect on the Dow Jones in the short term.
However, journalists in China such as Hu Xijin, the editor-in-chief of the Chinese and English editions of the Global Times, said that China is not anxious to reach a deal despite the projected decline in the Chinese economy’s growth.
“Both China and the US should cherish the current talks. Many US officials easily misread China’s goodwill, think it shows Beijing’s weakness. China doesn’t like talking tough before the negotiations, but I know China is not as anxious to reach a deal as the US side thought.”
China and the U.S. both have stated that the trade dispute has caused damage that could have been avoided and in that regard, both countries have enough incentives to reach a deal before the year’s end.
What happens if a deal is reached
With the Dow Jones still hovering at its record high, a trade deal following the approval of the Federal Reserve of an interest rate cut in September could send the Dow Jones to new all-time highs, relieving most of the pressure on the global economy by eliminating geopolitical risks.
A trade deal would critically lead to the recovery of the manufacturing sector of the U.S., which has entered into a recession in recent months.
Some have stated that the recession of the manufacturing sector may not be as heavily affected by the trade dispute, with a JP Morgan analyst stating that the build up of inventory has played a key role in slowing down the growth of the manufacturing sector globally.