Futures Slide On Reports Top Chinese Officials Doubt Trade Deal Will Ever Happen

Contradicting a Reuters report published just a few hours prior, Bloomberg dropped one of the most discouraging scoops about the US-China trade talks that we've seen in months, sending stock futures lower around the world.

BBG reported Thursday morning that many senior Chinese officials quietly suspect that the "Phase 1" partial trade deal purportedly reached earlier this month in Washington will soon fall apart, and that the odds of the two sides reaching a more comprehensive final deal are effectively zero.

The report reads like a bad WaPo hit piece on Trump, accusing him of being unrealistic about Beijing's willingness to compromise.

As it stands - or at least as it stood during President Trump's most recent press conference with Vice Premier Liu He - the first phase of the trade deal is essentially this: Chinese purchases of US farm goods and other products such as aircraft. It’s also expected to include Chinese commitments to protect American intellectual property and an agreement by both sides not to manipulate their currencies. In return, Trump agreed to drop the planned October tariff hikes, while remaining open to dropping the December hike as well.

Earlier on Thursday, reports speculated that the cancellation of the upcoming APEC conference in Santiago, where the US and Chinese delegations were supposed to finalize the "Phase One" deal, might give the two sides to work out a broader deal.

According to BBG's sources, this is the bare minimum that Beijing would accept to move ahead with Phase 1: a commitment from the Americans to removing tariffs in Phase 2, and agreeing to cancel the next round of tariffs, set to take effect in December.

The people familiar with China’s position said the tariffs don’t all have to be removed immediately, but they must be part of the next stage. China also wants Trump to cancel a new wave of import taxes due to take effect Dec. 15 on American consumer favorites such as smartphones and toys as part of the phase one deal, the people said.

The drop in eminis after the report wiped out half of yesterday's post-Fed gains.

And offshore yuan, the most closely watched indicator of trade-deal sentiment, also dropped on the news.

While Beijing remains "open" to more talks, senior officials privately don't see much of a point. Many of the big structural changes that Washington is demanding are simply unacceptable to Beijing, and have been since the beginning. With Washington refusing to budge on lifting all the new trade war tariffs, any big "asks" will likely be off the table, seeing as Beijing insists that removing all of the new tariffs be part of any final deal. Doing otherwise would simply be "politically unfeasible" for Xi.

Then again, it's also possible that the story could be a plant by the White House. With two FOMC voters opposing yesterday's rate-cut, and the central bank signalling that it's done with its 'mid-cycle adjustment', after yesterday, perhaps the only way for President Trump to browbeat the central bank into more easing would be to come out and declare that the trade talks have failed.