- US benchmarks rally to highest levels on record on market trade deal euphoria.
- US December composite PMI showed a modest improvement to 52.2.
Wall Street rallied Monday, with all three benchmarks pressing higher following last week’s confirmations from both side’s of negotiations that a Sino/US trade deal was set and waiting to be inked in January.
Subsequently, the Dow Jones Industrial Average, DJIA, climbed around 99 points, or 0.4%, to end near 28,235, according to preliminary figures, while the S&P 500 added around 23 points, or 0.7%, to finish near 3,191. The Nasdaq Composite closed near 8,814, a gain of around 79 points, or 0.7%.
Key notes of trade-deal to date
- President Donald Trump vowed not to pursue a new round of tariffs set for Sunday.
- China agreed to billions of dollars in agricultural purchases from the US.
- The US and China had agreed on phase-one of a trade deal last week, although markets are of the mind it is a one-and-deal scenario – (not so bullish).
- Markets are in anticipation of the details of the phase one-deal between the US and China.
- The world’s two largest economies plan to sign the partial accord in the first week of January.
- China have only stated that they will proceed for legal review and translation without touching on a timeline.
- Details of the new trade deal only appear to be a slight improvement on the details that the earlier ‘phase one’ deal had already agreed.
- Key difference is that this deal is “fully-enforceable”.
- The US has agreed to halve the tariffs on US$120bn of Chinese goods (from 15% to 7.5%) but will retain a 25% on US$250bn of Chinese imports.
- China confirmed prior agreement to purchase an additional US$16bn in goods from the US over the next two years.
- US Trade Representative, Robert Lighthizer, said on Sunday to CBS that the phase-one China deal was “totally done.”
- Lighthizer said the deal goes beyond agriculture to address intellectual property issues, noting that it has strong enforcement provisions and addresses financial services and currency devaluation issues – the deal is expected to be signed in January.
- Wall Street rallies to record highs.
Meanwhile, there are some sceptics out there and analysts at ABN Amro argued that while a ‘Phase-One’ deal reduces tail risks, but it won’t supercharge growth, and on imports, the analysts express that it would arguably be at the US’s discretion whether China will have done enough (importing of US goods) to fulfil its side of the bargain when the time comes.
US data
The US December composite PMI showed a modest improvement to 52.2 (last: 52.0). Manufacturing eased 0.1 to 52.5 and services rose 0.6 to 52.2. “New manufacturing orders rose 0.2 to 53.2 and the backlog of work index rose 0.3 to 50.8. Both helped the future output index for manufacturing rise. Meanwhile, the NAHB housing index rose to 5pts to 76 in December. That’s a 20-year high, and confirms momentum in the housing market,” analysts at ANZ Bank explained.
In corporate news, shares of Dow component Boeing were a weight and fell 4% after the Wall Street Journal reported the aerospace company was considering halting or cutting production of the 737 MAX aircraft.
DJIA levels
Share
