An Event Study: Trade Truce-Part 1, or Not?

See if you can find when Trump makes his statement about trade negotiations with China. Winning!

Here is the Dow Jones, 5 minute increments. Clearly, Mr. Trump’s statement had an afterhours impact.

Source: accessed 12/3/2019 2:15pm Central.

To see how the news was incorporated into expectations during non-trading hours, see the futures for the Dow Jones.

Source: accessed 12/3/2019 1pm Central.



14 thoughts on “An Event Study: Trade Truce-Part 1, or Not?

  1. pgl

    ‘The United States then threatened duties of up to 100% on French goods, from champagne to handbags, because of a digital services tax that Washington says harms U.S. tech companies.’

    He still wants to tax French wine? Even the Wine Institute disagrees (and yes I’ll still shamelessly promoting my Econospeak post on Bicycles and Wine Tariffs).
    ‘“All of these things are affecting the Trump administration’s credibility, but both sides have credibility problems,” said Scott Kennedy, a China economics expert at the Center for Strategic and International Studies in Washington.’

    I do not know Scott Kennedy and I presume he is smart dude. But WTF – =Trump has never had an ounce of credibility in the 1st place.

  2. pgl

    “President Donald Trump said on Tuesday a trade deal with China might have to wait until after the U.S. presidential election in November 2020, denting hopes that the two largest economies would soon reach an initial deal to ease their damaging trade war.”

    I see – Trump is terrified that making a good trade deal would piss off his base. Yes – he is the Coward-in-Chief.

    “Trump’s remarks sent stock prices tumbling and triggered a rush into safe assets such as U.S. Treasury debt. MSCI’s measure of global stock performance .MIWD00000PUS slid 0.9%, while the U.S. benchmark S&P 500 Index .SPX dropped 1.22%, its largest fall in nearly two months. Investors piled into government bonds, driving the yield on the 10-year U.S. Treasury note US10YT=RR to a one-month low near 1.7%. The dollar weakened against a basket .DXY of key trading partners’ currencies.”

    I bet the ranch that Wilbur Ross got an advanced notice so he could short sell stocks. BTW – isn’t a lower interest rate that devalued one’s currency the same thing as “currency manipulation”? At least that is what our Idiot-in-Chief keeps saying.

  3. 2slugbaits

    At this point I’m surprised that the markets would react at all to anything Trump says. He’s a dumb ass with a motor mouth. The markets are just chasing random noise. We’ve seen this movie so many times that we can recite the lines by heart.

    So where is Peak Trader? Did he finally see the light and finally recognize that Trump is no free trader now and never has been?

  4. Willie

    Trump says a lot of things. Anybody who actually believes any of them is foolish. He announced all kinds of breakthroughs with China in the past, as I recall. Have any of them been real? WINNING!

    Bill McBride says the future isn’t so bright today. He’s not on recession watch, but he’s not unboundedly optimistic like he was a number of years ago. The shamelessly non-technical dowsing stick still says the economy takes a dump in mid-2020. Somebody else can make the obvious coinage.

    1. macroduck

      A rise in the unemployment rate tends to be a reliable indication that recession is coming. The rate stopped falling on trend in Q2. The slowing in hiring so far this year is not enough to raise the jobless rate, but the ADP hiring numbers for November suggest a further slowing which could mean a rise in the jobless rate.

      Household balance sheets are in good enough shape that the transmission of a hiring slowdown might be limited, and there is no trend rise in the jobless rate yet. so it’s too early to run in circles. Not too early to pay extra attention on Friday, though.

  5. Moses Herzog

    Folks, these are important things. Where are we going from here?? Is this how the great American experiment ends?? The one my Chinese friends used to scoff at for having a “short” history of only about 225 years??

    There’s no turning back once we decide this type of behavior is ok. There’s no reboot button for this “blue screen of death”. Once it’s up there, we’re not going back. People need to start grasping the gravity of this situation. It’s not enough to laugh at a political cartoon anymore. If you’re an American this stuff should rock you to your soul that your leader has ZERO respect for the body politic of America and ZERO respect for its institutions. Yeah, we let Nixon float by and that was a HUGE mistake by America. But have we really sunk this low now?? You know HongKongers are sacrificing their lives and well-being for what we have NOW?!?!?!? For what we have NOW. They’re not “willing to give their left” arm for what America has–they’re willing to give up their LIVES. For what we have NOW.

  6. Left Coast Bernard

    Prof. Chinn,

    How much of the market movement in these charts results from programs analyzing news feeds?

    How much of the market movement in these charts results from “Keynes beauty contest” investing?

    “Value” investors or others basing investment decisions on fundamentals, I suppose, would have learned that Donald Trump’s statements are unreliable guides.

    Then there is the puzzle that every share that is sold by an investor is bought by an investor who evidently has the opposite opinion of current events.

    1. macroduck

      Most short-term equity, treasury and FX flow these days is driven by program trading. Program trading is, essentially, beauty-contest-driven. Which is to say, volatility trade is beauty-contest trade. Brad DeLong’s “noise trader” paper, which he considers perhaps his best, has stood the test of time.

      The every seller finds a buyer puzzle is less puzzling when you include the activity of market-makers. They hang around waiting to match bids and offers, moving the price in response to flow. True market makers are not as big a part of trade as they once were, but the function exists. The bit about moving prices in response to flow accounts for the “puzzle”.

      1. Barkley Rosser


        It is my understanding that the increasing importance of algorithmic trading has reduced the role of market makers in many markets to a very low level.

        Regarding whether they involve “Keynesian beauty contest” aspects depends on the program and its details. I do not think a general statement can be made on this matter.

  7. pgl

    LCB – Have you heard of the Efficient Markets Hypothesis or Rational Expectations? If so, your questions answer themselves.

    How much of the market movement in these charts results from programs analyzing news feeds?

    If news feeds are conveying new relevant information, all of it.

    How much of the market movement in these charts results from “Keynes beauty contest” investing?

    None of it.

    1. Left Coast Bernard

      Trump’s statements about trade are unreliable. The efficient markets hypothesis asserts that investors are rational and instantly incorporate all available information into their actions so that an asset’s price is always correct. Therefore these ideas do not explain why Trump’s statements, which are only randomly related to the facts, should move markets that are supposedly only fact-based. How do the efficient markets hypothesis and the supposed rationality of Homo economicus explain markets moving in response to falsehoods, contradictory or partial information, and random noise?

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