China Moves To Cut Auto Tariffs, Sending Futures Higher

Conflicting trade war headlines have flooded out of Beijing over the past week, complicating analysts' attempts to parse exactly how the arrest of Huawei CFO Meng Wanzhou has impacted the prospects for a future deal. But amid the chaos, a headline that hit the tape a few minutes ago could set the stage for US stocks to build on yesterday's late-day rebound.

According to Bloomberg, China is moving to cut its trade-war tariffs on US autos. US equity futures spiked on the news, mirroring their reaction from last Monday after Trump bragged about the concession twitter, only for Treasury Secretary Steven Mnuchin and advisor Larry Kudlow to pour cold water on the president's boasts by saying that the cuts had merely bee "discussed".

Futures

Bloomberg said China is planning to cut tariffs on US-made cars to 15% from the current 40% has been submitted to China’s Cabinet to be reviewed in the coming days. China boosted tariffs on US-made cars to 40% as part of a raft of retaliatory measures against the US imposed over the summer. To be sure, nothing is set in stone just yet. The decision is being reviewed, and could still change.

While US automakers will undoubtedly benefit from the move, Bloomberg pointed out that European automakers like Mercedes-Benz and BMW will be the biggest beneficiaries after both companies - which have sizable manufacturing operations in the US - warned about lower profits this year.

European auto stocks have posted the largest gains on the news:

Autos

Here's a roundup of headlines from BBG:

  • Faurecia stock rises 5%
  • Volkswagen stock jumps 4.3%
  • VW controlling shareholder Porsche SE gains 4.7%
  • Stoxx Europe Automobiles & Parts Index rises 2.9%, 2nd-biggest jump on broader index
  • Among car suppliers, Continental +3.7%, Valeo +3.5%
  • Daimler +3.1%, PSA +2.5%

Unless something goes seriously wrong in the next two-and-a-half hours, expect stocks to rip higher at the open:

To recap, here's a run down of auto tariffs-related developments from the past year involving the US and China:

To recap: China lowered import tariffs to 15 percent on autos and components, from 25 percent for passenger cars and 20 percent on trucks, starting July 1. It then raised the duty to 40 percent for American autos in retaliation against Trump’s trade actions. The U.S. has a 27.5 percent tariff on Chinese car imports, and 25 percent on trucks.

And before traders get too excited about the possibility that this could indicate China remains willing to strike a broader deal, Bloomberg reminds us that China's auto tariffs are "largely immaterial" since most of the vehicles sold around the world are made there.

Whether China reduces or removes tariffs is largely immaterial because the vast majority of vehicles in the world’s largest auto market are made there. China imports about 1 million cars a year – less than 5 percent of a market that totals an annual 27 million vehicles.