It’s only been one day since the US and China struck a partial trade agreement that President Donald Trump said was “phase one” of the larger trade deal that he has long teased, and Wall Street is already beginning to have its doubts.
‘The Greatest and Biggest Deal Ever Made’
Now unexpectedly on the defensive, Trump took to Twitter this morning to brag about the merits of the trade agreement, which he boasts is the “greatest and biggest deal ever made,” at least for one group: US farmers.
“The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country,” Trump tweeted. “In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!”
“WOW, the Farmers really hit pay dirt!” he added in a follow-up tweet.
….Other aspects of the deal are also great – technology, financial services, 16-20 Billion in Boeing Planes etc., but WOW, the Farmers really hit pay dirt! @ChuckGrassley @joniernst @debfisher @BenSasse Thank you to all Republicans in Congress for your invaluable help!
— Donald J. Trump (@realDonaldTrump) October 12, 2019
According to Bloomberg, the partial agreement – which Trump and Chinese President Xi Jinping will likely sign next month – will see the US delay a 5% tariff increase that was scheduled for Oct. 15. China will agree to increase its purchases of US agricultural goods to an annual total of as much as $50 billion over the next two years. Beijing also agreed to limited concessions on intellectual property transfer and currency policy.
Stock Market Analysts Remain Skeptical of ‘Phase One’ Deal
Stocks surged in response to optimism about the partial trade agreement, but it wasn’t long before investors began to scrutinize the news with a more sober outlook. The stock market declined sharply in the minutes preceding Friday’s closing bell, and the Dow Jones Industrial Average closed nearly 200 points off its session high (stock futures pointed to extremely minor gains when the markets closed Friday evening).
David Rosenberg, the chief economist and Gluskin Sheff and a longtime market bear, torched the rally as nothing more than a “charade,” noting that the Dow’s 319.92 point rally was “par for the course” for a stock market that continues to swing wildly on every trade-related development.
“Today’s charade was just part and parcel of the trade-induced volatility we have become accustomed to,” he tweeted after Friday’s close. “Since the beginning of August, we’ve had eight 300+ point Dow up sessions and seven 300+ down days. Par for the course.”
Today's charade was just part and parcel of the trade-induced volatility we have become accustomed to. Since the beginning of August, we've had eight 300+ point Dow up sessions and seven 300+ down days. Par for the course.
— David Rosenberg (@EconguyRosie) October 11, 2019
Josh Brown, the CEO of Ritholtz Wealth Management and an analyst at CNBC, said that the “phase one” agreement, when viewed in isolation, was “nothing” meaningful – and certainly not the “greatest and biggest deal ever made…in the history of our Country.”
Remove the speculation that it sets the stage for a more robust deal, and what you have is soybean purchases and yet another delay on a small tariff hike.
“Anyone think it’s more meaningful than that?” Brown said.
The trade deal "phase 1" is nothing. China buys some soybeans while we postpone taking tariffs up from 25% to 30%. Anyone think it's more meaningful than that?
— Downtown Josh Brown (@ReformedBroker) October 12, 2019
UBS Managing Director Art Cashin warned that it’s likely that “phase two” of the trade deal fails to materialize before either Trump or Beijing breaks the “temporary” phase one truce.
“I don’t think this gets us to Christmas,” Cashin said, per CNBC. “I think it could be a temporary truce that wouldn’t last very long.”
Given that Trump and Xi likely won’t sign the agreement until next month, there’s also the lingering threat that Washington-Beijing tensions will flare up again in the intervening period, which could put “phase one” – not to mention the larger trade deal the market really craves – at risk.
Traders will continue to digest the latest developments in the trade war over the weekend, and we’ll be able to gauge Wall Street’s temperature when the futures markets open on Sunday evening at 6 pm. Monday, Oct. 14 is a US federal holiday (Columbus Day), but US stock markets will remain open, unlike bond markets, which won’t open until Oct. 15.