Markets Sense Trump Pulling Back From the Brink

The U.S. stock market partially rebounded from the big sell-off that ended last week, with the S&P 500 Index jumping 1.10% on Monday. The gains came as President Donald Trump said Chinese officials called U.S. trade negotiators on Sunday “and said, `Let’s get back to the table.’” To be clear, the rally likely has almost nothing to do with traders believing a deal is near, especially after a spokesman for China’s foreign ministry wasn’t able to immediately confirm the details of any phone calls on Monday.

The more probable explanation is that traders are wagering that Trump – who has made the stock market the ultimate measure of his performance – reckons it’s better, for now at least, to tamp down the rhetoric in regard to China and higher tariffs after watching the S&P 500 sink 2.59% on Friday. Most of the commentary from Wall Street strategists over the weekend was that the economy and stock market were near a true turning point after Trump said he’s raising tariffs further on Chinese imports starting Oct. 1 in response to Beijing’s retaliation earlier in the day. Then came comments from Trump on Sunday that suggested he acknowledged having second thoughts on escalating the trade war with China. It didn’t matter that his top spokeswoman later said Trump meant he regretted not raising tariffs even more. To traders, those remarks – along with Trump’s reference to a phone call from Chinese trade negotiators –suggest that maybe additional tariffs will be avoided and the two sides can work toward a resolution without doing further damage to the economy or equities. “Increasingly, the markets are recognizing the alleged call from China is the U.S. blinking because of Friday's slide in equities and fear of the Trump Slump,” Marc Chandler, the chief market strategist at Bannockburn Global Forex, wrote in a Twitter posting.