US-China Trade Talks Positivity & Optimism

Although no specific and vivid progress in the current round of trade talks between China and the US has been formally announced, yet there are reports that both the countries have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war, according to sources familiar with the negotiations. The world’s two largest economies have slapped tit-for-tat tariffs on hundreds of billions of dollars of goods, slowing global economic growth, skewing supply chains and disrupting manufacturing.

As officials held high level trade talks in Washington, they remain far apart on demands made by US President Donald Trump’s administration for structural changes to China’s economy. But the broad outline of what could make up a deal is beginning to emerge from the talks, the sources said, as the two sides push for an agreement by March 1. That marks the end of a 90-day truce that Trump and Chinese President Xi Jinping agreed to when they met in Argentina late last year.

Negotiators are drawing up six memorandums of understanding on structural issues: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade, according to two sources familiar with the progress of the talks.

The progress made in the latest round of trade talks between the United States and China is very encouraging, said an American scholar on Monday. The trade talks have irreversibly left the point of failure in the rear view mirror though the extent of the success remains to be seen. It is a confirmation of the trust and goodwill that has been engendered and this bodes favorably for win-win outcomes in the weeks if not days ahead, he said. In retrospect, last week’s meetings in Beijing were critically important, he said. They ensured that the talks had crossed a threshold point from which failure was inconceivable.

The White House had threatened to increase the tariffs to 25 percent from 10 percent on the 200 billion US dollars of Chinese imports into the country if the two sides fail to reach an agreement on the solution of trade frictions before March 1. Ahead of the deadline, Chinese and US negotiators wrapped up the latest round of trade talks with substantial progress on specific issues in Washington. US President Donald Trump later tweeted that he will be delaying the increase of tariffs on Chinese imports scheduled for March 1, citing very productive trade talks between the two countries.

At meetings between US and Chinese officials last week in Beijing the two sides traded texts and worked on outlining obligations on paper, according to one of the sources. The process has become a real trade negotiation, the source said, so much so that at the end of the week the participants considered staying in Beijing to keep working. Instead they agreed to take a few days off and reconvene in Washington. The sources requested anonymity to speak candidly about the talks.

The MOUs cover the most complex issues affecting the trading relationship between the two countries and are meant, from the US perspective, to end the practices that led Trump to start levying duties on Chinese imports in the first place. One source cautioned that the talks could still end in failure. But the work on the MOUs was a significant step in getting China to sign up both to broad principles and to specific commitments on key issues. The United States has accused Beijing of forcing US companies doing business in China to share their technology with local partners and hand over intellectual property secrets. China denies it engages in such practices.

Trump administration officials also object to non-tariff barriers in China, including industrial subsidies, regulations, business licensing procedures, product standards reviews and other practices that they say keep US goods out of China or give an unfair advantage to domestic firms. US Treasury Secretary Steven Mnuchin has pushed for China to open its financial services markets to more foreign firms, including credit card giants Visa and MasterCard, which have waited years for China to make good on promises to allow them to operate there. On currency, US officials including Mnuchin have warned China against devaluing its yuan to gain a competitive advantage after the Chinese currency weakened significantly against the dollar last year, partly counteracting Trump’s tariffs.

The two sides were discussing an enforcement mechanism for the deal, the source said. Reuters reported last month that the United States was pushing for regular reviews of China’s progress on pledged trade reforms and could reinstate tariffs if it deems Beijing has violated the agreement.

The parties also were looking at a 10-item list of ways that China could reduce its trade surplus with the United States, including by buying agricultural produce, energy and goods such as semiconductors, according to two other sources familiar with the talks.

Time is running short ahead of the March 1 deadline to resolve the dispute or see U.S. tariffs on $200 billion worth of Chinese goods rise from 10 percent to 25 percent. Trump said on Tuesday he thought China had an incentive to move swiftly. I think they’re trying to move fast so that doesn’t happen, he told reporters in the Oval Office, while not ruling out the possibility of extending the deadline. Lower-level officials held a round of talks in Washington on Tuesday and Wednesday. They will be joined on Thursday by the top level negotiators, led by U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

Ahead of talks, on the basis of optimism, global stocks Stocks finished broadly higher as investors remained optimistic that the US and China will make more progress in resolving their costly trade dispute. Energy companies, retailers and industrial stocks accounted for much of the broad gains as the market extended its winning streak to a fourth day. President Donald Trump has said he might let a March 2 deadline slide if the U.S. and China get close to a deal.

The S&P 500 index gained 8.30 points, or 0.3 percent, to 2,753.03. The Dow Jones Industrial Average climbed 117.51 points, or 0.5 percent, to 25,543.27. The Nasdaq composite added 5.76 points, or 0.1 percent, to 7,420.38. The Russell 2000 index of smaller-company stocks, which has been leading the other indexes this year, added 4.71 points, or 0.3 percent, to 1,542.94.
Major indexes in Europe also finished broadly higher, despite a report of slumping industrial output across the 19 countries that use the euro.

The market briefly lost some of that momentum around midmorning Wednesday as US Sen. Marco Rubio announced over Twitter plans to introduce a bill aimed at deterring companies from buying back their own stock. Rubiosaid the argument that stock buybacks free up money for companies to reinvest in growth isn’t backed up by the facts. Rubio’s remarks come as corporate stock buybacks hit new highs last year.

Buybacks, in which companies purchase their own shares and retire them, are popular with investors since fewer shares outstanding lifts earnings per share. Investors continued to evaluate the latest batch of quarterly results. Higher room rates pushed hotel operator Hilton Worldwide to a strong fourth-quarter profit, beating analysts’ forecasts. The company also gave Wall Street a strong profit forecast for the current quarter. Hilton’s stock rose 6.8 percent and competitor Marriott International added 3.6 percent.

Groupon slumped 11.1 percent after the online daily deal service came up short of analysts’ profit forecasts for the quarter. Customer traffic in its key North America market fell, dragging down revenue. TripAdvisor slid 5.7 percent after the travel website operator reported weak fourth-quarter profit and lower revenue from its key hotel bookings segment.
US benchmark crude rose 1.5 percent to settle at $53.90 a barrel in New York. Brent crude, the standard for international oil prices, gained 1.9 percent to close at $63.61 a barrel in London.
The pickup in oil prices gave a boost to energy stocks. Exxon Mobil rose 1.1 percent. Bond prices fell. The yield on the 10-year Treasury rose to 2.70 percent from 2.68 percent late.
The dollar rose to 110.99 yen from 110.52 yen. The euro weakened to $1.1271 from $1.1331.

Gold added 0.1 percent to $1,315.10 an ounce. Silver slipped 0.2 percent to $15.65 an ounce. Copper was little changed at $2.77 a pound. In other energy futures trading, wholesale gasoline added 2.7 percent to $1.47 a gallon. Heating oil climbed 1.7 percent to $1.94 a gallon. Natural gas dropped 4.2 percent to $2.58 per 1,000 cubic feet.

Similarly, in result of positive reports from the Washington based trade talks US stocks ended higher on Monday as market sentiment was lifted by the latest progress on US-China trade talks. The Dow Jones Industrial Average climbed 60.14 points, or 0.23 percent, to 26,091.95. The S&P 500 was up 3.44 points, or 0.12 percent, to 2,796.11. The Nasdaq Composite Index rose 26.92 points, or 0.36 percent, to 7,554.46. Shares of US equipment maker Caterpillar, a company with high overseas revenue exposure, gained 1.97 percent at the close, among the best performers in the Dow. Boeing, another trade-sensitive stock, rose 0.67 percent.

Seven of the 11 primary S&P 500 sectors closed higher, as gains in groups like materials and technology roughly offset the losses in utilities and real estate. Shares of General Electric rallied 6.39 percent. Reports on Monday revealed that Danaher plans to buy General Electric’s biopharmaceutical business for about 21 billion US dollars. Wall Street has been keeping a close eye on the news about US-China trade talks these days.

I think the one great thing about the negotiations that have taken place between China and the United States is they’ve been consistent, Mark Otto, an experienced New York Stock Exchange trader. So all the time traders have information flowing to them saying that things are going positively between China and the United State, everyone wants to see a deal come out of this,” he added, when commenting on the recent market performances.

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