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Dow Closes Up Following News of Successful US – China Trade Deal Talks

Posted on Friday, November 8th, 2019 by Steve Anderson

For the last three years, the Dow Jones Industrial Average—more commonly “the Dow”—has been on an absolute tear. Since the Dow serves as one of the US' leading economic indicators, that's been good news. However, some believe that the Dow's inherent capability may have been suffering lately with the US-China trade war, a point that got some extra credence following gains after word that the two sides were approaching a deal.

News of a Deal is Good Enough...For Now

The Dow closed up, as of this writing, with the revelation that China and the US were planning to roll back tariffs on both sides, in phases, as they made a closer push toward an overall trade deal. That was the word out of the Ministry of Commerce, and it was point enough to give the Dow a further leg up. The Hang Seng index, China's equivalent, also made gains that day, and even the yuan itself gained some ground.

Ministry representative Gao Feng noted “In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement. If China, US reaches a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement.”

This was regarded on several fronts as not only clear progress toward an overall deal but also a better idea of what the content of such a deal would ultimately look like. China has been aggressively demanding the removal of tariffs since the deal wrangling first began back in July 2018.

News of a Deal May Not Be Good Enough Much Longer

Despite the upticks on several fronts, some proved short-lived. The Hang Seng lost many of its gains in trading a day later. Oversea-Chinese Banking Corp. economist Tommy Xie noted that investors were still cautious and that just what the two sides actually agreed to was still something of a gray area.

Market watchers have already shifted their focus to just how the US will react to China's remarks on tariffs, and word of trouble in finding a meeting place for the so-called “Phase One” deal to be struck also weigh on the matter. Reports suggest Trump had offered Mar-a-Lago as a locale, but also broached the subject of Switzerland, noting that no place would be “more neutral” than that.

Skepticism, however, was prevalent all over. ING Bank NV economist Iris Pang noted from Hong Kong, “I am skeptical of how fast the progress will be. How fast the rollback will be is critical to get material and long-lasting positive sentiment for the market as well as for both economies.”

News of a Deal is Not Alone in Developments

However, adjustments are made on both sides. Not only did the Chinese recently agree to purchase several hundred thousand tons of US produce in soybeans and pigs, among others, but the Chinese also handed down hefty sentences for nationals caught involved in smuggling the opioid fentanyl to the US. China's Ministry of Agriculture and General Administration of Customs, meanwhile, are looking into pulling curbs on US poultry imports.

Some of this is done out of necessity. The Chinese have recently been struck by a series of agricultural reversals, the most recent and perhaps the most pointed of these is the outbreak of African Swine Fever, which as of September was directly responsible for the death of one in three Chinese pigs. Some reports now put that number as high as one in every four pigs worldwide. Reports from mid-October saw Chinese pork prices increased 70 percent from the same time last year, which was sufficient to increase Chinese inflation to three percent just in September.

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