- The Dow Jones closed at a record high on Friday above 28,000 on hopes of imminent progress in the U.S.-China trade war.
- Leaked Chinese documents showing China’s crackdown on its Muslim minority population threaten to freeze Trump-Xi relations.
- Given that the Dow’s rally has been fueled by hopes of a trade deal, this setback now puts the stock market rally at great risk.
Things were looking so good for the Dow Jones as it closed above the historic 28,000 level on Friday. This impressive move looked poised to continue next week after another trade war positive headline on Saturday hinted that further progress had been made between the U.S. and China.
Unfortunately for stock market bulls, an explosive New York Times report on China’s “no mercy” approach to its Muslim minority population threatens a sharp rebuke from Xi Jinping’s government, potentially devastating President Trump’s hopes for progress on trade.
Dow Jones Could Face Collapsing U.S.-China Trade Relations
The Dow has not relied solely on the Trump administration’s negotiations with China, but there is no question it has been a significant factor in the index’s recovery from 26,000. Despite the expedited progress of the “Hong Kong bill” by the Senate, U.S. trade officials and Xi’s government have managed to retain a steady relationship.
Nothing that has so far happened in Hong Kong is as embarrassing for the Chinese Premier as the NYT’s revelations about the “concentration camps” being utilized in Xinjiang. The question is unlikely to be if China responds, but instead, how aggressive their retort will be.
Theoretically, the U.S. Senate’s bi-partisan bill could now easily be expanded to include more severe condemnation of the Chinese government. Given that the Dow has plenty of good news priced in and is nearing overbought levels on the technical charts, this is not only worrying news for Trump’s hopes of securing a phase one deal before the 2020…