Over the weekend, new hope has arisen that a trade deal between the U.S. and China may be forthcoming this month. Reports from the Wall Street Journal and elsewhere have indicated China has agreed to roll back tariffs and other restrictions on U.S. goods coming into its country. The U.S. would also peel back most or all tariffs its has targeted on Chinese goods coming here.
A reported end to the months-long trade war is good news for the domestic indexes, which follow Asian market closings in the green overnight. Hong Kong's Hang Seng rose 0.5% while the Shanghai composite grew 1.1%, and Chinese stocks overall are at their highest levels since the summer of 2018. At this hour, the Dow looks to increase 100 points from Friday's close, with the Nasdaq +40 and the S&P 500 +10, and the Nasdaq has gone up 9 weeks in a row, for the first time since 1999.
Industries in the U.S. most impacted by the trade war - including soybean farmers, chemical companies and auto parts manufacturers, to name a few - are expected to respond very favorably to this report. We expect to get more details later this week when the Chinese legislature announces new policy initiatives. These are anticipated to include a 3% reduction in its value-add tax on domestic manufacturing, which point to the government's attempt to revive its faltering economy.
The trade war between the U.S. and China has always pivoted on intellectual property (IP) rights: Chinese companies are infamous for having usurped foreign companies' technology and reproducing goods at a fraction of the price. Now, Chinese officials are expected to relax efforts to force businesses to hand over technology blueprints, which appears to be in service of this good-faith initiative.
Of course, today's reports are still lacking in key details, but developments seem to be pointing in a positive direction. A Chinese economy in need of a boost and a U.S. president under fire from critics at home could both use a solid trade agreement to improve their fortunes.
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