After sliding below 3,100 amid trade deal pessimism as recently as 9pm ET, futures have recovered all losses since the Reuters report that a trade deal may be delayed into 2020 after a report from Hong Kong's SCMP, which reported that while "hopes remain a watered-down deal can be reached before new US tariffs go into effect on December 15", but even if the deal proves elusive, "sources say it is likely they will be at least postponed."
As the SCMP further reports, "it is understood neither side wants the 15 per cent tariff on US$156 billion of Chinese imports
to go ahead, since they would hit popular consumer electronic products, including smartphones, for the first time, affecting US consumers and large swathes of China’s manufacturing base." One can of course counter this by saying that by the time the US consumers are affected it will be late January, if not February, so it is clearly a spin on Chinese propaganda.
One can and should also counter this fake news trial balloon by citing Trump who just two days ago said that if there is no trade deal by Dec 15 will hike Chinese tariffs.
None of this, however, stopped the SCMP narrative, which was allegedly based on a source close to the Trump administration (one would be safe to assume that would be Larry Kudlow), who said that "if an agreement is not reached before December 15, those tariffs will therefore probably be delayed “because they are on the doorstep of this” phase one deal.
“I don’t think you’ll have something big delivered by December 15, but I do think that you will have something that forestalls the tariffs because it is in both sides’ interests,” the source said.
It is also unclear why the source assumes that Trump would be willing to concede a delay especially since when during a visit to an Apple Mac Pro factory in Texas also on Wednesday, the US President claimed a deal to end the trade war had not been reached “because I haven’t wanted to do it yet,” and because “I don’t think [China is] stepping up to the level that I want”.
“I can tell you this: China would much rather make a trade deal than I would,” Trump said.
Since the report was entirely anonymous, it wasn't clear who the sources are - it certainly was not Peter Navarro - especially since a delay of tariffs by the US would show Trump as weak and with no leverage, and as such, we expect this latest Chinese trial balloon to represent Beijing as having the upper hand will be promptly denied by a US trial balloon of its own, most likely via Reuters.
Then there was the issue of the Hong Kong vote. As a reminder, on Wednesday China threatened to retaliate if Trump signed the Hong Kong Human Rights and Democracy Act, which the US Congress passed on Wednesday, after it sailed through the US Senate on Tuesday. Here, the SCMP reports that "the US side is of the opinion that Beijing has already “internalised” the Hong Kong Human Rights and Democracy Act, since it has been in the works for some time, the source close to the White House said.
However, Chinese sources warned that if Trump signed the act, Beijing would be expected to react.
For now, however, nobody cares as optimism has been restored, and S&P futures hit session highs after the SCMP report.