Dow Jones Industrial Average (DJIA) futures slumped lower in premarket trading Thursday, pointing to a weak stock market open. It comes as the US and China struggle to resolve major sticking points in the ongoing trade war battle.
Michael O’Sullivan, former CIO of Credit Suisse Wealth Management, sees a breaking point coming before Christmas.
All the little parts of the deal are beginning to come apart and it wouldn’t surprise me if we have another rupture as we head into Christmas.
Trump and Xi Jinping are struggling to find middle-ground on three major parts of the trade deal.
First, China is reluctant to commit to the $50 billion agriculture purchases touted by Donald Trump. Second, the US is pushing for deeper protections on intellectual property rights. Third, China insists that Trump rollback the existing tariffs on Chinese exports.
“If you look at the underlying concerns, intellectual property, access to Chinese markets, etc… None of that has been resolved” – O’Sullivan.
At the same time, both Trump and White House advisor Larry Kudlow have refused to back down over the rollback of tariffs. As a result, there’s very little chance of a meaningful agreement in the near future.
“To me it looks at very, very best like we’ll just get a cosmetic sort of ceasefire” – O’Sullivan.
Investors are clinging to hopes that a phase one trade deal is close to conclusion. But O’Sullivan believes the White House is at risk of being “stranded” as negotiations break down.
“At this stage, both sides want a sense of peace and I think in particular the US has gone into this badly prepared and will now have to settle for something second best.”
Trump maintains that a deal could be signed “soon,” but there may not be much substance in the agreement.
“I think China has played this very well. They’ve been very, very patient as they tend to be. And they may get off, if I may put it like that, with a very small concession. And I think it leaves the White House stranded, maybe not politically, but economically.”
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Last modified: June 14, 2020 9:52 AM UTC