The Monday Report

Daily Market Reports | Dec 03 2018

By Greg Peel


President Trump has agreed to hold off on raising existing tariffs on Chinese goods to 25% from 10% for 90 days, which was previously to occur on January 1, and not to impose any further tariffs for now to allow time for trade negotiations to proceed.

In return, President Xi has pledged to purchase what Washington has described as “a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between our two countries”.

Both sides also pledged to "immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft".

The “truce” was agreed upon on Saturday night. As Friday night’s trade on Wall Street was coming to a close, one trader suggested that were Saturday night to bring a “truce”, US stock markets would “explode” on Monday night. Another commentator suggested that one better than a truce would be if China were commit to buy US goods. Positive rhetoric ahead of the meeting had Wall Street buoyant in anticipation.

So what the hell happened on Bridge Street on Friday?

To sell our market down -1.6% ahead of a meeting that could well lead to the outcome above is a strange call. But from the open, the sellers were keen. The real plunge nevertheless came between 11 and 11.30am, when the index fell from -36 points to -82 in that short period. An attempt to rebound then failed and the index ultimately closed down -91.

We could single out two potentially influential factors. Firstly, China’s manufacturing PMI was expected to hold steady at 50.2 in November from October but it fell to a 28-month low 50.0, implying manufacturing growth in China has completely stalled. Chinese manufacturers consume a lot of rocks, and we sell most most of them.

But the materials sector was actually an “outperformer” on the day in falling only -0.7%. Energy (LNG exports) fell only -0.8%. Big falls elsewhere suggest China was not a major influence and besides, one might have read a weak PMI as proving some impetus for Xi to give some ground in Buenos Aires.

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