Futures Spike After China's Top Trade Negotiator Says "Cautiously Optimistic" About Phase 1

Futures slumped for just over three hours amid fears that the US-China trade deal was hopelessly lost and in anticipation of Chinese retaliation for Congress voting unanimously to support Hong Kong protesters, before a burst of optimism was injected. Only there was a surprise twist: instead of the optimism coming from Kudlow, or Ross, or even a Trump tweet, this time it was China that did what it could to push up US equity futures.

As Bloomberg reported, China’s chief negotiator and vice premier Lie He, said Wednesday night that he was “cautiously optimistic” about reaching a phase one trade deal with the U.S., even as tensions over Hong Kong soar while trade talks continue to stretch out without even a meeting date still agreed upon.

How do we know this? Because as Bloomberg reports, "Liu He made the comments in a speech in Beijing" although not in public, but rather to an Impeachment-style whistleblower, i.e., "according to people who attended the dinner and asked not to be identified."

It was unclear why, if Liu He was truly "cautiously optimistic", officials wouldn't say so in public, and instead we would have to rely on a deep throat Bloomberg source, who refused give his name. This unnamed source said that He also explained China’s plans "for reforming state enterprises, opening up the financial sector, and enforcing intellectual property rights -- issues which are at the core of U.S. demands for change in China’s economic system."

And while algos focused exclusively on the flashing red Bloomberg headline, reading a bit further into the article reveals that Blomberg's unnamed "source" Lie He told one of the attendees that he was “confused” about the U.S. demands... but was confident the first phase of an agreement could be completed nevertheless.

Credible or not, the Bloomberg report was enough to send S&P futs spiking back over 3,100 now that if not order, then at least trade optimism has been (somewhat) restored...

... with the Chinese Yuan jumping as much as 100 pips before cutting gains in half.

The bigger question: now that both the US and China are trying to jawbone US equity futures higher, just how much higher can they go, and a corollary - how much lower is fair value if now one needs both the US and China to spark the occasional trade pessimist short squeeze.