US eases ban on Huawei
The US seems to have eased the trade restrictions on Huawei. On May 20, the Department of Commerce issued a three-month license to Huawei. The license allows the company to receive software updates and patches for its Android-based phones. After the news came out, the Dow futures rose 0.4% or by nearly 100 points at 7:46 AM EST on May 21. At the same time, the S&P 500 futures and the NASDAQ futures rose 0.5% and 0.6%, respectively.
Trump in damage control mode
On May 15, President Trump signed an executive order, which without naming Huawei restricted it from selling devices in the US market due to national security issues. After President Trump’s executive order, Google suspended business with Huawei, which meant that its existing devices would stop receiving future android updates. The executive order was expected to make the US-China trade relations worse. China was expected to retaliate by restricting large US companies and others’ trade with China.
The temporary license issued on May 20 by the Department of Commerce allows Huawei to receive updates necessary to support existing handsets and networks. The Trump Administration’s decision to allow the company to receive support for the next three months might be damage control after a sharp sell-off in US tech companies’ shares on May 20. The decision will likely reduce the bitterness in the US-China trade relations and open the possibility of more trade negotiations.
On May 20, tech companies’ sell-off pressurized the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ). SPY and QQQ fell 0.7% and 1.7%, respectively. SPY and QQQ hold Microsoft, Apple, Amazon.com, and Facebook as their top four holdings as a percentage of their total portfolio. The iShares China Large-Cap ETF (FXI) lost 1.4% on May 20. Tencent Holdings accounts for nearly 10% of FXI’s total portfolio.