A Slight Thaw in The Trade War
During the G20 meeting, President Donald Trump met with Chinese President Xi Jinping. Little was expected from the meeting, but the leaders surprised the world by announcing a temporary truce on trade.
The US softened its restrictions on Huawei’s US technology purchases. More importantly, Trump hit the pause button on slapping tariffs on all Chinese imports.
China agreed to purchase US farm products and return to the negotiating table.
But Not All Is As It Seems
Stocks Eye Bullish Boost as Fed Ignores Trump-Xi Truce https://t.co/5STENlV1Hn
— CCN Markets (@CCNMarkets) July 1, 2019
Analysts have been mixed on the development.
Rabobank’s Asia-Pacific strategist Michael Every was pragmatic in his analysis:
“Nothing has been achieved or conceded at all except an agreement to restart talks and the postponement of the final stage of tariff escalation to a blanket 25 percent. Both sides realized that a full-on historic step-up to complete economic confrontation would be too painful right now, so they did what everyone likes to do: they smiled and can-kicked."
This reflects the fact that the developments that occurred are more cosmetic than anything else. The leaders are essentially sending a positive message to the world in order to blunt the panic that likely would have resulted had there been no movement at all.
Still, it generated a rally on Wall Street. Bernstein analyst Stacy Rasgon said:
“The overall situation appears mostly status-quo; while Trump is holding off on new tariffs (for now), the existing tariffs remain in place, and it seems like trade negotiations are closer to the beginning than finalization. Nevertheless, markets are likely to breath something of a sigh of relief, at least initially, on the view that things are (for now) at least not escalating.”
Tesla and Apple See Optimism
Tesla stock rose as much as 5 percent before settling in for a 1.7 percent gain on the news. Tesla stock had gotten whacked recently when the US denied its request for an exemption from the 25 percent tariffs on imported Chinese goods.
Tesla needs to save as much money as it can because of its cash-strapped situation. The news of possible movement in US-China relations juiced Tesla stock higher.
Apple stock also popped 3.5 percent before settling in for a 1.8 percent gain on the same news. Apple stock has been hit by the tariffs because it assembles its iPhone in China. Thus, tariffs on Chinese exports would force Apple to either price the phone much higher - which might harm sales - or eat the excess expense, which would also cut into profits.
Wedbush Securities analyst Daniel Ives said:
"The positive step in the right direction announced between the two countries to not levy additional tariffs while negotiations continue, in essence this takes away the biggest risk on the Apple story (for now)."