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US-China Partial Trade Deal Drives ASX and Asian Stocks

  • October 14, 2019 09:07 PM AEDT
  • Team Kalkine
US-China Partial Trade Deal Drives ASX and Asian Stocks

In a major breakthrough in the US-China trade dispute, the US has agreed to suspend its next tariff hike (planned for October 15th) on USD 250 billion worth of Chinese imports. In return, Beijing has committed to buy up to USD 50 billion of goods from American farmers who have suffered from the long-running trade war.

US-China Enters into Partial Deal

The US President, Mr Donald Trump, called it a substantial phase-one deal, which is likely to be wrapped up and signed by mid-November. The deal also involved China?s commitments related to intellectual property, its currency and permission to the U.S. financial services industry for accessing Chinese markets.

?The partial deal was announced following the trade talks between Mr Trump and China?s Vice Premier Liu He in Washington. After about 15 months of a prolonged tit-for-tat tariff war between the US and China, the two sides have made some progress on the harder issues.

Both the US and China sides had imposed duties on billion dollars? worth of goods during the dispute, and the US President had warned to increase tariffs from 25 per cent to 30 per cent on about USD 250 billion of Chinese goods on October 15 if there had been no progress on a deal.

As per Mr Trump, with this deal, the US farmers would have to search for a new land for achieving the Chinese purchases that have fallen drastically due to the trade war. Mr Trump has hinted of a bigger trade deal over the next several months with China.

Market experts have different opinions over this partial deal between the two largest economies of the world. Some believe that the deal has eased trade tensions and has revived hopes of a trade truce with a final agreement between the two countries. However, some are of the opinion that the partial deal will upset nearly everyone, including consumers and the U.S. businesses, that will be compelled to pay billions extra for imported goods.

Australia?s PM, Mr Scott Morrison, has congratulated both China and the US over their partial deal. The benchmark index of Australian share market, S&P/ASX 200 index jumped 0.5 per cent on 14th October 2019, closing at 6642.6 points, over optimistic investor sentiment after trade deal announcement.

With the signs of progress in the US-China trade talks, the Asian stocks gained on 14th October 2019. At the time of writing the article, the following indices were up:

  • Hong Kong?s Hang Seng Index, 0.89 per cent up at 26,542.19
  • Shanghai Composite Index, 1.17 per cent up at 3,008.32
  • Shenzhen Composite Index, 1.43 per cent up at 1,660.33
  • South Korea?s KOSPI Composite Index, 1.11 per cent up at 2,067.40
  • Taiwan TAIEX, 1.63 per cent up at 11,066.95
  • Singapore?s FTSE Straits Times Index, 0.44 per cent up at 3,127.70
  • Indonesia?s JSX Composite Index, 0.19 per cent up at 6,117.29

Let us now take a look at the other trending macro-economic events related to international trade that are impacting equity markets across the world:

US-Japan Trade Deal

Though the impact of the US-China one phase deal is yet to be seen by the two counties, US and Japan have emphasised?over the positive outcome from their recent trade agreement.

Recently, Japanese Prime Minister Shinzo Abe and Mr Trump entered into the US?Japan trade agreement that involved the reduction of Japan?s tariffs on USD 7 billion worth of American agricultural products. Japan agreed to suspend tariffs on blueberries, corn, wine, almonds, broccoli, cranberries, cheese, prunes and wheat with an import value of USD 1.3 billion annually.

Under the deal, the U.S. pork and beef producers were also provided with a reduced tariff rate of 9 per cent. Both the US and Japan have applauded the positive results from the deal; however, the result of the trade agreement on Japanese cars and car parts was not so favourable. Under the agreement, the US did not abolish the existing 2.5 per cent tariffs on Japanese automobiles, which is the most critical issue for Japan.

As per few market experts, the US-Japan deal intends to rebuild the share of market lost by American farmers in Japan to rivals in Canada, New Zealand and Australia, since the US President withdrew the US from Trans-Pacific Partnership. However, some experts believe that Japan has overlooked multilateral trade negotiation standards, while giving preference to cooperation with the US President?s re-election goals.

China?s Trade Surplus Declines

Amidst the prolonged trade dispute, China's trade with the US has contracted again in September, with the exports to the US falling by 17.8 per cent to USD 36.5 billion. The September figure indicated a deterioration from 16 per cent fall in August. China reported worse than expected import and export data over the year to September 2019, with its exports falling 3.2 per cent and imports declining 8.5 per cent during the same period.

The weak September data underlined the need for a more stimulus in the Chinese economy. Although Mr Trump has suspended the tariff hike planned for October, both China and the US feel that much more work is needed ahead.

Australia?s August Trade Surplus Down

In early October, the Australian Bureau of Statistics or ABS also reported a significant decline in Australia?s monthly trade surplus in August. The country recorded a trade surplus of $5.9 billion in August, substantially less than the record high level of $8 billion trade surplus experienced in June 2019.

The massive fall in the trade surplus was majorly due to a reduction in the iron ore and coal prices. ABS announced a fall of $1,464 million in exports of goods and services, while a fall of $137 million in imports of goods and services.

Although Australia and China?s latest trade surplus figures are not so promising, investors have become optimistic following high-level trade negotiation between the US and China that has driven equity markets up.?


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