US-China rally eases after Chinese hesitancy
|Hopes of a first phase US-China trade deal have been undermined by a less positive tone from the Chinese. Meanwhile, markets look beyond the Queen’s speech as the Brexit clock runs down.
- US-China deal glee undermined by less positive Chinese tone
- Brexit talks remain key despite Queen’s speech
- Can Johnson get a deal ahead of the summit?
Market jubilation at the potential end to the US-China trade war seems to have been somewhat premature, with Trump’s “phase one” trade deal being knocked back by the Chinese today. For all the talk of Trump not accepting a partial trade deal, this announcement of a first-stage deal does highlight that they see benefits to getting something across the line to help reverse the global slowdown. The Chinese seem to be one meeting away from finalising this first phase deal, yet with a raft of tariffs previously planned by the US, it is highly likely that we will see some form of deal announced to the benefit of risk assets. The final phase of the trade deal is likely to remain a significantly more difficult hurdle to overcome, yet for markets their chief concern is less about the nitty gritty of IP rights, and more about increased trade as is expected under this first phase.
On a day that has been largely devoid of US and Canadian trade, the European focus has been on the ongoing Brexit outlook ahead of the upcoming European council summit. While the Queen’s speech and ensuing debate has been the major event of note, markets are fully aware that Johnson may not even have the opportunity to undertake most of what has been laid out today, with an election likely in the coming months.
Despite the feeling that Boris Johnson is shifting in order to obtain a deal, mainland European scepticism signals doubts that a deal could be agreed ahead of the summit. Nevertheless, for markets we are seeing a shift away from the sense that Johnson actively wants a no-deal Brexit, with GBPUSD hitting a three-month high on Friday on the prospect of a deal. The feeling is that this meeting may have come too soon, yet should an extension be required, Johnson will likely use these crunch talks as an opportunity to set out most of the final deal with the EU.
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