How will the US-China trade agreement affect investors' sentiment?

A year and a half since the outbreak of trade wars, after several months of stormy negotiations, this afternoon, Deputy Prime Minister Liu will sign a 86-page document of the initial US-China trade agreement in a flash of flash. The White House will be flying over it with delight, but according to TMS Brokers analysts it is facade, incomplete and does not definitively end the commercial dispute. All the more there will be no panacea for the ills of the global economy, which is growing at the slowest pace than the financial crisis.

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China will pledge, among others to changes in exchange rate policy, better protection of intellectual property, liberalization of the financial system. These are all issues whose rating is not zero-one. By the end of 2021, the Middle Kingdom is also to make additional purchases of US goods worth USD 200 billion, of which over USD 30 billion are to be agricultural produce. In return, the US will reduce tariffs on the product catalog by USD 120 billion (from 15 to 7,5 percent). Let's add that customs duties on the remaining part of tariff goods (240 billion) remain at the current level.

Preliminary contract without controversy

Signing the document alone will not arouse euphoria of investors. Making certain entries public may even lead to disappointment. That was yesterday, when sentiment broke the information that the United States will not give up customs duties before the presidential election. Attention will quickly shift to work on a comprehensive agreement. Donald Trump announced that he would visit Beijing for this purpose, but of course the date of the visit is not known. The Treasury Secretary Steven Mnuchin, in turn, suggested that the second phase of talks could be further divided into stages. This is to facilitate difficult negotiations.

There is no doubt, however, that sensitive issues were ignored in the initial agreement. In May, the Chinese side announced that 20 percent. American demands are unacceptable. It will not be easy to get an agreement on removing non-tariff trade policy instruments, concessions in the area of ​​access to modern technologies, financial services and industrial policy changes. And yet you should also develop appropriate control mechanisms and guarantee compliance with the arrangements ...

China can step down?

How intense will the next conversation be? We do not expect them to finish in the next six months or before the election. Trump's attitude will be dictated by support polls. And these are very bad for the president in agricultural states (Iowa, Ohio, Wisconsin) and in Michigan, where the automotive industry is concentrated. Therefore, the course of the campaign may condition its rhetoric and threaten, for example, European car manufacturers (after all, customs duties are suspended until May). The Chinese side may be more willing to make concessions, because duties on USD 360 billion worth of goods are still in force and weighing on the economy.

This is not the end of the problems

It seems that the most turbulent phase of trade wars is behind us. TMS Brokers experts estimate that the scale of uncertainty affecting global industry and business investment will be smaller in the coming quarters. At the same time, the impact of the current conflict will reach its apogee in the second part of the year. This means that the problems of the global economy will not disappear as if by magic, and the path to recovery will be long and bumpy. Therefore, TMS Brokers analysts believe that investors' optimism can be put to the test.

- We see a high probability of cooling down the investment mood. This should translate, inter alia, into on recovering losses by the recently weak yen, or increases in EUR / PLN from the current, not matching the fundamentals levels. EUR / USD in the broader horizon, it should continue the arduous climb to higher ceilings that began in the fourth quarter. We assume that the pound will resume the rally at the end of the year. For now, pregnancy currency high probability of cutting feet by Bank of England, but if this happens in January, the gate to resume will be wide open - ocenia Bartosz Sawicki, head of the Analysis Department at TMS Brokers.

source: TMS Brokers press material