Tags: china | deal | trump | markets

Only 'Spectacular' US-China Deal Will Make Stocks Soar

china and us currency note on date

By    |   Friday, 15 March 2019 11:07 AM

President Donald Trump said the U.S. will probably know, one way or another, in “the next three or four weeks” about a possible trade deal with China.

“If that one gets done, it will be something that people will be talking about for a long time,” Trump said Thursday at a White House event.

Trump had said he was in “no rush” to complete a trade deal with Beijing, CNBC reported.

Treasury Secretary Steven Mnuchin said “there’s still a lot of work to do, but we’re very comfortable with where we are" in trying to forge a pact.

“I don’t think there’s anything significantly different on the currency issue from where we were last time,” he said.

Mnuchin also said he expected elements of the discussions to be resolved in the near future, as the two sides pore over a 150-page document they are working on.

The impact of all this is now quite negligible on financial markets.

A deal of some sort is already priced in for equities and the U.S.-China trade agreement would have to be spectacular to get a strong upward reaction now.

Besides that, today we got today the data from the Fed on industrial production and manufacturing production.

Industrial production edged up 0.1 percent in February after decreasing 0.4 percent in January. Manufacturing production fell 0.4 percent in February for its second consecutive monthly decline. Total industrial production was up year-on-year by 3.5 percent in February.

Capacity utilization for the industrial sector edged down 0.1 percentage point in February to 78.2 percent, which is 1.6 percentage points below its long-run (1972–2018) average.

The weakness in developed economies’ manufacturing at the end of last year was led by the Europeans and not by the United States. Nonetheless, with trade tariffs creating uncertainty, the data have its importance on financial markets.

U.S. equities could profit from it

For the time being, financial markets are enjoying the prospect of stimulus in the Chinese economy with Premier Li Keqiang reiterating a desire to support growth and put employment first at the end of the National People’s Congress (NCP) meeting today. 

Premier Li Keqiang speaking at a press conference he said: “The foreign investment law may be used as a reference in relation to investments from Hong Kong, Macao and Taiwan. Moreover, the institutional arrangements and actual practices that have long been in place and proven effective will go on.”

The new law, set to come into effect on January 1, 2020, is intended to address outstanding concerns from foreign investors, such as unfair treatment with regards to market access and government procurement, forced technology transfers to Chinese partners and the theft of commercial secrets from foreign businesses in China, the South China Morning Post reported.

Besides all that, Reuters reported that North Korea is considering suspending talks with the United States and may rethink a ban on missile and nuclear tests unless Washington makes concessions, news reports from the North’s capital quoted today a senior diplomat as saying.

Kim is set to make an official announcement soon on his position on the denuclearization talks with the United States and the North’s further actions.

That may produce a short-term reaction in financial markets but these things tend not to have a lasting impact.

In the interminably tedious EU-UK divorce, the UK Parliament officially voted yesterday to make the process more “interminable”. 

The UK wishes to delay exit until June at least. Now, the European Union will need to agree to that, unless the “nuclear” option of withdrawing and then resubmitting Article 50 is “unilaterally” chosen by the UK, which might make sense in the case of a long-term delay.

The idea of a second referendum was overwhelmingly rejected by the UK Parliament after the opposition Labor Party abstained from voting.

The lack of a strong move in the British pound demonstrates the lack of much market interest.

The British pound is around its yesterday’s close of $1.3242

Anyway, MPs have voted by 413 to 202 for Prime Minister Theresa May to ask the European Union for a delay to Brexit.

This means that the UK may now not leave the EU on March 29 as was planned. Prime Minister Theresa May says Brexit could be delayed by three months, to June 30, if MPs (Members of Parliament) back her deal in a vote next week, the BBC reported.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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A deal of some sort is already priced in for equities and the U.S.-China trade agreement would have to be spectacular to get a strong upwards reaction now.
china, deal, trump, markets
Friday, 15 March 2019 11:07 AM
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