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D-PIMS Weekly Market Update - Week of 13th to 19th January 2020

Today’s Monday Update:

Not a great deal went on over the last week, apart from the US/China ‘Trade Deal’ of course, so we have focused on this:

• Wednesday – The US - China trade war is hopefully set to enter a new, quieter phase as U.S. President Donald Trump and Chinese Vice Premier Liu He signed an initial trade deal that aims to vastly increase Chinese purchases of U.S. manufactured products, agricultural goods, energy and services. The ‘Phase 1’ agreement caps 18 months of tariff conflict between the world’s two largest economies that has hit hundreds of billions of dollars in goods, rattled financial markets, uprooted supply chains and slowed global growth. The centrepiece of the deal is a pledge by China to purchase an additional $200 billion (£153.60 billion) worth of U.S. goods over two years to cut a bilateral U.S. trade deficit that peaked at $420 billion in 2018.

On the US side the ‘Phase 1 deal’ cancelled planned U.S. tariffs on Chinese-made cell phones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers. Evidence is mounting that these tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

The deal includes pledges by China to forbid the forced transfer of American technology to Chinese firms as well as to increase protections for U.S. intellectual property. But it stops well short of addressing the core US complaints about China’s trade and intellectual property practices that prompted the Trump administration to pressure Beijing for changes since early in 2017.

The deal contains no provisions to rein in rampant Chinese subsidies for state-owned enterprises, which the US administration blames for excess capacity in steel and aluminium and says threaten its industries, from aircraft to semiconductors.

It also fails to address digital trade restrictions and China’s onerous cybersecurity regulations that have hobbled U.S. technology firms in China.

US Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer moved to stamp out suggestions that the U.S. and China may review possible removal of more tariffs after the November U.S. election, issuing a joint statement that there were no written or oral agreements for future tariff reductions. Mnuchin later told reporters that Trump could consider easing tariffs if the world’s two largest economies move quickly to seal a ‘Phase 2’ follow-up agreement. But given how many issues have been left out of the ‘Phase 1’ deal, the second one may take quite some time to agree.

• Due to the trade truce, Global Stockmarkets were in a fairly good mood and generally in positive territory. All the D-PIMS Portfolios had another positive week, particularly the higher risk Portfolios.

 

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The comments made above represent our interpretation of events and market views and are in no way a guarantee of future investment performance.

 

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