The G20 went off better than most expected, with Trump reportedly playing an innocuous role as an actual diplomat; but the coup de grace for the equities market was some breathing space from the trade war as China and the U.S. declared a 90-day truce from the tariff conflict.
The Dow is loving the holiday largesse, jumping 400 points in the premarket and opened 345 higher on news of the 90-day truce agreed by Trump and Chinese President Xi Jinping at the G20 on Saturday.
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In the pre-market, the S&P 500 was up 1.44 percent, and the Nasdaq jumped 1.87 percent.
Trump had been threatening to increase the 10-percent tariff on $200 billion in Chinese goods to 25 percent as of the first of the New Year, but a three-month postponement is now on the books to give the two sides time to talk.
The ceasefire was made possible after China agreed to buy more American farm and industrial products, and to sit down at the negotiating table over the highly sensitive issues of intellectual property theft, force technology transfers and cybersecurity.
Trump called the meeting with Xi “extraordinary”, and the markets agreed wholeheartedly.
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The biggest sigh of relief probably came from Apple, which was trading up nearly 1.6 percent right after market open Monday.
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For Apple, it’s been a dark week—if not a dark several months after making the trillion-dollar club earlier this year. The specter of another round of tariffs that would target the iPhone had wreaked havoc on the stock earlier this month, prompting talk of having to do the impossible: bring production home.
Nor is Apple the only one feeling like Christmas might come after all. The White House also said that China was “open to approving the previously unapproved” $44-billion deal for Qualcomm to acquire chipmaker NXP if it came up again. Qualcomm tried to buy NXP this summer, but Chinese regulators quashed the deal. For now, though, Qualcomm isn’t biting. It told Reuters it wasn’t planning to make another go of it. Related: Tesla’s Chinese Sales Are Plummeting
American soybean farmers will also be rejoicing, with soybean prices surging Monday on the news, with January futures contracts gaining 1.9 percent at the Chicago Mercantile Exchange.
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"China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately," the White House said in a statement.
It might not be enough to save farmers facing bankruptcy over 25-percent tariffs that have locked them out of the Chinese market, but it’s better than nothing, and Trump is promising quick benefits.
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So, what comes next? That’s anyone’s guess. If no new deals are reached during negotiations over the next 90 days, then we’re back at square one, and facing another round of tariffs that would include pretty much everything made in China.
For now, the markets are surging in optimism, but they should also be recalling what happened in May, when a similar truce was announced by US Treasury Secretary Steven Mnuchin, who said at the time that the trade war had been “put on hold”. A few weeks later, it was a roaring beast, once again.
Any optimism right now will necessarily be cautious.
By Fred Dunkley for Safehaven.com
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