There is apparently a difference in the manner in which the United States and China view the partial trade deal that the two parties have managed to reach as reported. While it is being viewed as a trade deal by US President Donald Trump, China is calling it as a progress in the negotiations on trade.
And corporate spending and investment is now hanging in the balance caught between the unclear nature of the agreement reportedly arrived at between the US and China.
The announcement on Friday by Trump of a substantial trade deal has been viewed with skepticism by Wall Street analysts. For example, Evercore ISI strategists noted that it “focused on the low-hanging fruit, with a lot vague or not addressed.”
“Overall, we don’t think this Phase 1 deal clears the air for global corporations to decide on what matters most – where to invest, produce, hire or source,” Evercore said in a note to investors.
According to reports quoting sources, the trade representatives of China want to hold more negotiations within the next couple of weeks. China’s negotiators want to include greater details in the trade agreement before a formal “phase one” trade deal is signed by Chinese President Xi Jinping and Donald Trump.
There is doubt that this “mini-deal” will lead to the end of the trade war between the two countries that has been ongoing for more than a year now, says Credit Suisse, and added that it foresees “daunting obstacles” still persisting in the path of a full resolution of the trade conflict. But some good news in the early agreement is being expected by Credit Suisse.
“We believe it sets a floor for markets for at least the next 1-2 months,” Credit Suisse analysts Dan Fineman and Kin Nang Chik said.
The trump administration is yet to announce a decision about the already announced increased tariffs on Chinese goods lasted to come into force from December 15 Even though the scope of the early agreement “looks roughly as expected,”, Goldman Sachs chief economist Jan Hatzius told investors. It said that the next round of negotiations will probably include the December 15 tariffs.
“At this point we continue to expect implementation of that tariff round … though likely with a delay into early 2020,” Hatzius said.
The tariffs scheduled for December will take effect id China doesn’t sign the phase one of the deal, Treasury Secretary Steven Mnuchin told the media on Monday.
Market analysts predicted a gloomy beginning for the calendar third quarter earnings season is about to start even though there was a boost to the equity market following the optimism expressed by Trump on Friday. Prior to reporting third quarter results, expectations have been lowered by a sizable percentage of S&P 500 companies according to FactSet.
“Of the 113 companies that have issued EPS [earnings per share] guidance for the third quarter, 83 have issued negative EPS guidance and 30 have issued positive EPS guidance,” FactSet senior earnings analyst John Butters wrote in a note.
Negative outlook for their profit have been forecast by 73 per cent of S&P 500.
Moreover, according to estimates by FactSet, a year-over-year drop in third quarter earnings will be reported by companies which will be 4.6 per cent lower than the same period last year.
Analysts said that before the earnings outlook improves, a more concrete deal will be needed.
(Adapted from CNBC.com)