Trump teased the public over the weekend on the US-China trade deal, saying “Good things are happening” and that the deal is the greatest and biggest for US farmers. More details were released Sunday with Trump introducing phases for the trade deal. Phase One involves China immediately purchasing “very large quantities” of US agricultural product.
Negotiators from China will arrive in Washington D.C. this week for another round of trade talks. The Chinese delegation will be led by Vice Premier Liu He (President Xi will not be present). The US is scheduled to raise tariffs from 25% to 30% for $250 billion of Chinese goods on October 15. Ahead of the meetings, Liu is already taking industrial policy and government subsidies off the negotiating table.
Equity markets have been adrift for the past couple weeks. All major equity indices were slightly down last week and the only real winners have been high quality bonds. There isn’t a single event or social media posts by Trump causing this drift, but rather the lack of positive developments on multiple fronts, such as the US-China trade war and Brexit, which continue to mount uncertainties. In the meantime, the prospects of slowing global growth are still intact and weighing on economic outlook.
There was surprisingly little news impacting financial markets last week. In a follow up to the drone strikes in Saudi Arabia, the Trump administration is pushing for increased sanctions on Iran. Secretary Pompeo visited Saudi Arabia last week to construct a coalition to deter Iran, who is believed to have supported the Houthi rebels that have claimed responsibility for the attack.
Geo-political events recently escalated in the Middle East with a drone attack on a Saudi Arabian (Aramco) oil facility over the weekend. Brent Crude oil jumped 10% over the weekend due to the expected disruption. Houthi rebels from Yemen, supported by Iran, have claimed responsibility for the attack. Secretary of State Pompeo places blame solely on Iran; the Saudi government has yet to determine responsibility. The full impact to world oil production is still unknown but the primary concern for markets would be the risk of further escalation between the top five oil producers and OPEC neighbors.
Trump continues to poke at China, claiming they are “eating the tariffs” and that the US will no longer be “taken to the cleaners.”China so far has been dragging out the negotiation process and digging in their heels.