9 Oct

Markets Rebound as China Proposes Partial Trade Deal

WRITTEN BY Anuradha Garg

Stock futures rose on October 9 after a Bloomberg report surfaced saying that China is ready for a “partial trade deal.” Citing an official with direct knowledge of the negotiations, Bloomberg reported that China could consider an agreement given that the Trump administration doesn’t impose any more tariffs. Talks between the US and China are slated to start on October 10.

Markets plunged yesterday

On October 8, the markets fell as hopes of a trade deal dimmed. The Trump administration blacklisted several Chinese companies, citing minority human rights violations. There were also reports that the administration was looking to limit pension fund exposure to Chinese stocks. These developments spooked the markets.

Chinese tech stocks particularly affected

The S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the Nasdaq Composite (QQQ) closed down by 1.6%, 1.2%, and 1.5%, respectively, on the day. Chinese stocks reacted even more to the latest escalation of political and economic tensions. JD.com (JD), Tencent (TCEHY), Alibaba (BABA), and Baidu (BIDU) fell 3.9%, 0.8%, 3.8%, and 1.9%, respectively, on the day. Chinese ADRs (American depositary receipts) could remain volatile until there’s a trade solution.

China narrows the scope of trade talks

Even before the start of the negotiations, China narrowed the scope of the trade deal. This development implies that it’s not willing to give way on sticking points such as intellectual property rights or industrial policy. These issues have remained at the core of the conflict between the two countries. The stickiness has also led to many failed attempts at truce talks.

President Trump has made it clear in the past that he doesn’t want a half-baked deal. Many market observers see this latest step by China as an indication that it’s gaining the upper hand in the trade talks as Trump’s impeachment crisis unfolds.

China’s NBA ban

Tensions between both countries also stepped up after Chinese media banned NBA telecasts in the country. It did so in retaliation to the Houston Rockets’ general manager, Daryl Morey, tweeting in favor of the pro-democracy protests in Hong Kong.

China ready for a partial trade deal in exchange of noncore concessions

Beijing is ready for a partial trade deal, as per Bloomberg. In return, it’s willing to offer noncore concessions such as the purchase of more agricultural products. Bloomberg quoted Huo Jianguo, a former Chinese commerce ministry official, as saying, “The recent blacklist and sanctions from the U.S. is just another usual tactic to showcase that it has multiple tools in the trade negotiations in line with Trump’s maximum pressure policy. It is hardly surprising to us and we shouldn’t take it too seriously.”

Relations between the two countries have particularly soured in the last few days. However, even a partial trade deal at this point would soothe some of the market’s concerns. It would at least be better than further escalation. Investors, however, shouldn’t bank on it, as we’ve seen several rounds of failed negotiations so far.

The US markets seem to be celebrating renewed hopes of a trade deal. At 9:40 AM ET today, the S&P 500 and Dow Jones were trading with gains of 0.78% and 0.67%, respectively.

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