Trading the US vs China battle at the G20 Summit

Mark the 30 November 2018 in your calendar. It will be the first time a South American country, Argentina, will have hosted a G20 Summit. It is also the day US president Donald Trump and Chinese president Xi Jinping are due to have a private dinner to discuss business. The outcome of this US vs. China battle could have a huge impact on the markets, as we discuss below.

G20 summit flags

What is the G20 Summit and why is it important?

The Group of Twenty (G20) are made up of the largest industrialised and emerging economies in the world. The G20 account for more than 85% of all the money in the world. This year’s event, in Argentina, expects close to 20,000 government representatives for over 60 meetings. It is these side meetings where deals are done and which attract the attention of traders and investors all around the world.

However, there is one meeting that everyone is focused on. It’s been nearly a year since Donald Trump and Xi Jinping have met face to face. A lot has happened in that time:

  • The US has slapped $250 billion worth of tariffs on Chinese goods
  • China retaliated with $110 billion worth of tariffs on US goods and has threatened other measures that would affect American businesses in China
  • The S&P 500 index crashed nearly 11% lower
  • The Nasdaq 100 index crashed over 14% lower
  • China posted its worst ever GDP result since 2009

With these kind of results, it’s little wonder Trump wants wants to reach an agreement on trade with Chinese president Xi Jinping at the G20 Summit in Argentina. In fact, he’s already instructed US officials to begin drafting potential terms.

The key question for traders is what will the market do in the event of a trade agreement or no trade agreement? After all, trading is about having a game plan in different scenarios. In this instance, it’s good to look at what has happened historically during key events, as the pattern may help with your next trade.

How will the market react to the G20 Summit outcomes?

While it is too early to tell what all the outcomes may be from the G20 Summit, there are two possibilities that traders are focusing on: an end to trade tariffs between the US and China, or an escalation of trade tariffs.

The last, and third, round of tariffs began on the 24 September 2018. The US put $200 billion worth of tariffs on Chinese goods and China responded with $60 billion of tariffs on US goods. How did the market respond? Let’s take a look:

Source: Admiral Markets MT5 Supreme Edition SP500, Daily – Data range: from 6 July 2018 – 12 November 2018 – performed on 12 November 2018 at 4:17 PM GMT

The yellow box highlights the announcement of a third round of trade tariffs. A week later the stock market crashed, highlighted by the light blue box. If no agreement is made during the G20 Summit, a similar scenario may be likely.

But what happens if they can come to an agreement? Well, let’s analyse how the market reacted when Trump announced, on 2 November, that he wanted to reach a trade agreement with Xi Xinping at the G20 Summit.

Source: Admiral Markets MT5 Supreme Edition SP500, Daily – Data range: from 11 September 2018 – 12 November 2018 – performed on 12 November 2018 at 4:23 PM GMT

The yellow box highlights the date of Trump’s announcement. The blue box highlights the move after the announcement. At the time it seemed like the markets enjoyed the message of a possible deal. If an agreement can be reached at the G20, a similar pattern may occur.

Of course, the move lower in October was much bigger than the move higher in November, suggesting traders are still cautious. Whatever happens, all eyes are now fixed on this market event.

How to start trading market events

Market events, like the G20 Summit, represent unique opportunities for traders due to the high probability of increased volatility. If you are considering trading these events yourself, practice your skills on a demo account, so you can test your trading strategy or ideas in a risk free trading environment.

Once you feel confident and have formulated your game plan, you can then transition to a live account and trade live on global markets. However, as trading is about winning and losing make sure you learn to exercise risk management to keep safe in a volatile environment.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.