Why the Dow got excited about the Chinese commerce ministry’s comments with more US tariffs looming

Wall Street was casting around for optimism and found it in China’s “calm” response to the latest US volley

US investors are hoping Donald Trump will resolve his trade battle with China. Their optimism may prove unfounded (REUTERS)

Why did the Wall Street get so giddy about the latest developments in Donald Trump’s trade war with China?

Stocks leapt on Thursday on the back of hopes of progress, with the Dow adding more than 300 points, although a pause for breath is expected today.

Yet another round tariffs comes into force on Chinese goods arriving in the US on Sunday, but investors took note of the news coming out of China in response. The world’s second-biggest economy appears to be keeping its powder dry, at least for now.

Optimists took heart from the Chinese commerce ministry saying it is opposed to escalating the dispute and wants to resolve it. The word “calm” was used, and couldn’t we all use some of that right now.

This boosted hopes among investors that more talks – which Treasury Secretary Steve Mnuchin said are expected to continue without saying when in an interview with Bloomberg – could finally lead to a resolution.

Reasons to be cheerful then? This is thin stuff.

The US market is still off by 2 per cent on the month, weighed down by concerns about the domestic economy, with recession warning lights starting to flash red. Against that backdrop, there was a sense of Wall Street casting around for something to cheer itself up at the end of a grim month.

Earlier in the week Trump had said China “wants a deal” but “it’s me getting in the way”. Sit down before you read this, but that was the President being completely honest.

The chance of him getting out of the way and a deal actually happening rests entirely upon his political calculus going into the forthcoming US election.

His polling numbers are currently bad. The strength the US economy has shown under him serves as his long suit with voters outside the nativist crowd that laps up his anti-immigration rhetoric and fist-waving.

A deal would surely boost the economy, lifting sentiment and spurring the Dow to claw back more losses, which he would claim credit for as he has before.

There are also signs that the tariffs are starting to hurt, and perhaps anger, parts of his base.

Even a largely symbolic pact could be dressed up as a victory.

But set against that is Trump’s desire to be seen as the strong man, and to use that to draw a distinction between him and whomever emerges from the crowded field of Democrat challengers. America first!

Which Trump will on out? Wall Street is, of course, crossing its fingers for the deal maker. The merest hint of its hopes being realised will have the market behaving as if Christmas has come early. Well, it won’t be long before the decorations start going up.

However, given the way the President has conducted himself up until now, it really shouldn’t get too excited.