Markets Cautious After Trump-Xi Meeting

There has been little in the way of breaking news in the immediate aftermath of Trump's meeting with Xi in Beijing, with markets taking on a cautious optimism as both sides emphasise cooperation.

The Market-Moving Events

• No major breakthroughs follow the Trump-Xi meeting, as both tout cooperation, but China's leader warns about Taiwan tensions.
• Markets focus on AI to post new gains, with the Nasdaq poised for back-to-back record highs.
• US Treasury yields rise as geopolitical concerns leave traders hedging their optimism amid high inflation and rising bets the Fed will hike before the end of the year.

Trump, Xi Meet, But Few Details Are Disclosed

If traders had hoped for a clear signal of change following the much-anticipated meeting between US President Donald Trump and Chinese President Xi Jinping overnight, they were disappointed. Immediately after the encounter, both leaders expressed a positive and constructive attitude but made no major announcements regarding policy changes or other information that would alter market outlook. Reporters pressed questions on major geopolitical issues, such as Taiwan and Iran, but neither responded. In his opening remarks, Trump was effusive towards his Chinese counterpart, emphasising the importance of friendly relations. By contrast, Xi cautioned that the relationship between Beijing and Washington could be in jeopardy, while emphasising the bilateral benefits of cooperation.

Markets apparently were already anticipating no major breakthroughs at the encounter, and performed mixed afterwards. Brent remained over $106 per barrel, as there was no progress in ending the war in Iran. Given the lack of major news, traders' focus was on AI, with global indices either rising or expected to do so, led by tech stocks. In fact, the lack of news meant that nothing negative had happened, reducing uncertainty and giving the market the green light to push higher. However, US long-term yields flashed a warning sign as the 30-year Treasury yield broke above 5% for the first time since the subprime crisis, after a hot PPI report on Wednesday. Kevin Warsh was confirmed by the Senate as the new Fed Chair starting on Monday after the expiration of Jerome Powell's term. But rising inflationary pressures have raised market expectations that the Fed's next move will be a rate hike, with futures pricing in a 40% chance, up from just 20% a week ago. A higher dollar index suggests traders' optimism, driven by tech growth, remains tempered by geopolitical concerns.

Nasdaq Keeps Setting Records

The premier tech index in the US rose to a new all-time high on Wednesday ahead of the meeting, with futures pointing to another positive session on Thursday. AI tech stocks led the index, as CEOs from major technology firms such as Nvidia and Apple were in Beijing with Trump to improve relations. One issue on Nvidia's docket is US approval to export H200 chips, but no orders have been received. Business leaders are expected to hold more meetings through Thursday, which could help buoy the Nasdaq.

Nasdaq Rise at Risk on Waning RSI Momentum

After an impressive rally since the bottom under 23K, the tech has indeed crossed well into overbought territory, but momentum shows a warning divergence. The rather sharp slope to 29500 is under threat despite all VWAP lines pointing up, with the auto-trendline playing a critical role in the short-term direction. Its break could send prices down towards the middle VWAP at 28K if 28660 gives way. On the upside, there lie the 29750 and 30K psychological levels.

Source: SpreadEx | US Tech 100, Daily Chart