Update (0940ET): Surprise!! It turns out that China commenting that it believes/hopes that tariffs will be delayed next week is not enough for anything but headline-reading algos. White House Chief of Staff Mick Mulvaney just injected some reality by noting that next week's tariff decision will depend on how the talks are going... and that sent stocks back down again...
There was a silver-lining from Mulvaney - noting that the trajectory of phase one talks is "pretty good" but the market is ignoring that for now.
* * *
Following chatter earlier this morning, a WSJ report claiming that the White House and China had agreed to delay a planned tariff hike scheduled for Sunday sent equity futures soaring.
The yuan, a popular gauge of trade-deal sentiment, also rallied on the report.
Though earlier reports hinted that such a delay was in the works, as we mentioned below.
Meanwhile, bonds barely budged.
Despite the administration's insistence that a deal was basically finished, sources from both sides told WSJ that the delay has been agreed on as the US and China haggle over the amount of agricultural products that Beijing must agree to buy as part of the deal.
U.S. and Chinese trade negotiators are laying the groundwork for a delay of a fresh round of tariffs set to kick in on Dec. 15, according to officials on both sides, as they continue to haggle over how to get Beijing to commit to massive purchases of U.S. farm products President Trump is insisting on for a near-term deal.
In recent days, officials in both Beijing and Washington have signaled that Sunday is not the final date for reaching a so-called phase-one deal—even though that is the date President Trump has set for tariffs to increase on $165 billion of Chinese goods. That date could be extended, as has happened several times when the two sides thought they were on the verge of a deal. Those prior deals, though, never held and tariffs continued to mount.
Chinese and U.S. officials involved in the talks say they don’t have a hard deadline. On Friday, White House economic adviser Larry Kudlow said on two television appearances that there were “no arbitrary deadlines.” Such remarks from Mr. Kudlow—especially when they are restated several times—often reflect the president’s views and have been echoed privately by other U.S. officials.
With both sides hinting that negotiations could be extended beyond Dec. 15, Mr. Trump himself has gone back and forth in his public remarks between threatening a prolonged trade battle and trying to calm jittery investors. White House adviser Jared Kushner, the president’s son-in-law, has recently become involved in trying to help the two sides reach a trade agreement.
As 2019 comes to a close, the Trump Administration is shifting its focus to working with Mexico, Canada and Nancy Pelosi (despite all the furor around impeachment) to pass USMCA (Nafta 2.0). But although negotiations with China will be put on hold temporarily, a mini-deal to delay the next round of US tariffs from taking effect on Dec. 15 is still possible, according to a report by SCMP.
Meanwhile, on Monday, Secretary of Agriculture Sonny Perdue said the US likely won't move ahead with imposing new tariffs on a $160 billion swath of Chinese goods, including toys and smartphones, on Sunday, and that talks are progressing on the subject of IP.
Additionally, Commerce Secretary Wilbur Ross told Fox Business that American and Chinese negotiators are working "around the clock" on a deal, but added that it's more important to win a good deal for the US than to put off the tariffs set to take effect on Sunday. Ross added that the Phase One deal would focus on agriculture and trade. On the other hand, Ross said the US is "within millimeters" of winning a deal on USMCA.
Ross sat for an interview with Marie Bartiromo, where he bashed the Dems for insisting on insignificant changes to enforcement and digital commerce mechanisms that ultimately delayed the deal with little added benefit. Ross added that the final deal is still being drafted.
According to SCMP, Washington has other reasons to hold off on the next round of tariffs: If the US follows through, Beijing could retaliate by introducing its "undesirable entities" list, which it has long threatened. The list would allow Beijing to retaliate against specific US companies, including blocking them from doing business in China.
“I don’t expect a final deal by the 15th. There are still difficult things to work out and Lighthizer is focused on the USMCA end game at the moment. That said, I’m not betting on tariffs either,” said Clete Willems, a partner at law firm Akin Gump and former deputy director of the US National Economic Council. “Another round of tariffs would likely yield the unreliable entities list from China, further political hardening, and all but end the chances of a deal before the election. I don’t think either side wants that.”
Ross insinuated that Dems were holding off on passing the plan, which would create more than 170,000 jobs, because they don't want to distract from impeachment.
Whatever Beijing decides to do in retaliation to the tariffs, it'll likely be big. Because adding another 15 percentage points of tariffs on $160 billion of goods being imported to the US will have a tsunami-like impact on China's already-faltering economy, one analyst said.
If the US does follow through with tariffs on Sunday, it's extremely likely that the trade talks will collapse.
Chinese analyst Lu Xiang said that the implementation of the 15 per cent tariff on around US$160 billion of Chinese goods would be "treated as a natural disaster."
"If we see US tariffs on Sunday, it would mean the talks collapse," said Lu, a research fellow on US-China relations with the Chinese Academy of Social Sciences. "The final decision is in the hands of [US President Donald] Trump. But China has prepared for the worst scenario."
Of course, at this point, it's impossible to tell which headlines carry weight, and which are merely just the Trump Administration panic-pumping stocks.