The markets are getting off to a rock-solid start on Monday as U.S./Chinese trade tensions ease. U.S. President Trump met with Chinese President Xi Jinping over the weekend as both leaders were in Argentina for the G20 meetings. The pair reportedly had a very productive conversation over trade and other issues, and agreed to hold off on additional tariffs set to be initiated on January 1st, 2019. Talks will continue in the meantime, and markets today appear confident that some type of deal will be hammered out before the New Year.

 

The effective cease-fire in the war on trade has sent stocks sharply higher in early action Monday with the Dow Jones Industrial Average up by nearly 400 points. Crude oil is also seeing some benefit, with prices higher by almost four percent. Gold is also sharply higher in early going, with spot prices higher by nearly $14 per-ounce.

 

The notion of a significant agreement being reached on trade comes on the heels of Federal Reserve commentary last week that many considered to be significantly more-dovish. Although the central bank will almost certainly hike rates again before the end of the year, the path forward for next year is undecided. The central bank had penciled in another three rate hikes for next year, although traders now appear to be pricing in only one more hike for 2019.

 

In addition to an increasingly dovish Fed, a trade agreement between the world’s two largest economies could also put pressure on the dollar. The greenback is slightly lower in early going today, and further progress on trade could erode some of the currency’s safe-haven appeal. A weaker dollar may simply reinforce surging demand for commodities and dollar-denominated assets and could set the stage for a significant rally across several asset classes. A stronger dollar has likely been a major factor in gold’s lack of upside this past year, and a major reversal could potentially ignite a powerful rally in gold that could signal the beginning of the next cyclical bull market.

 

Although stocks may now see a near-term boost, the longer-term outlook remains unclear. Numerous bullish factors have now come into play in recent days that could propel equities higher into next year. Some big tests may lie ahead for the stock market, as the bears may look to sell heavily into any significant rallies.

 

The gold market, on the other hand, appears poised for further upside as it gets ready to challenge near-term resistance in the $1245 area. The market may benefit from a weaker dollar if a trade deal is reached and the Fed slows its tightening. The market also stands to benefit from rising commodity and raw material demand. In addition, the geopolitical climate may also see some significant changes next year that could heighten gold’s appeal as the democrats take control of the House. This could lead to serious government-gridlock and may make it difficult, if not impossible, for President Trump to continue to implement his agenda. The threat of further investigations into the administration may also keep investors on their toes.

 

The next several weeks going into the end of the year could provide some significant clues about changing market dynamics and what investors will be focused on as the New Year gets underway.