“The greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country,” as President Trump put it, triggered stocks to rally Friday, then fade this week with buyers wary about a report that China wants more talks.
In exchange for Trump lowering his planned tariff increase on $250 billion worth of Chinese exports, China agreed to double its annual agricultural purchases from America.
The announcement produced an extreme two-day rally in global stocks and sell-off in rates comparable to what happened in December 2018, Morgan Stanley reported.
Bearish Morgan Stanley equity strategist Micheal Wilson — one of Wall Street’s most skeptical strategists — poured cold water on Trump’s announcement, calling Phase 1 of a three-part deal an underwhelming mini-deal.
“The bottom line for us is that without a significant roll-back of existing tariffs, we don’t see how a ‘mini-deal’ will change the currently negative trajectory of growth in both the economy and earnings,” Wilson wrote.
China wants more talks later this month before Phase 1 is signed. The deal is “uncertain” at best, Morgan Stanley strategists Michael Zezas and Meredith Pickett said in a note.
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“There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk,” analysts wrote to their clients.
A bigger trade deal in three stages will evolve over time, according to Trump. More divisive issues will be addressed later including things the U.S. alleges but China denies even exist — such as forced transfers of U.S. technology.
“The fact that the negotiators were so anxious to announce a deal suggests that both sides now appreciate the damage being done to their economies by the conflict,” J.P.Morgan analyst David Kelly wrote.
Friday’s price action was comparable to the last trade truce on Dec. 1, 2018, at the G-20 meeting in Argentina, Wilson said. The next trading day on Dec. 3 saw a big gap open then quickly fade.
