China Deal ‘In Principle’ Turbocharges Stocks, Sends Bonds Tumbling

China Deal ‘In Principle’ Turbocharges Stocks, Sends Bonds Tumbling

The US and China reached a “deal in principle” on a “Phase One” trade agreement, Bloomberg reported on Thursday afternoon, around five hours following Donald Trump’s “VERY close” tweet, which juiced stocks just after the opening bell sounded on Wall Street.

Equities later trimmed gains, then traded mostly sideways as reports trickled in and Trump continued to tease traders.

“We’re working a deal with China”, he said at the White House, just before noon. “Many countries are doing poorly, but I won’t say China because we’re working a deal with them”.

Read more: China Deal All But Done. Trump Says ‘VERY’ Close, Dow Jones Tips Tariff Rollbacks

As if the suspense hadn’t been built up enough, a pair of Senators (Bill Cassidy and John Cornyn) told the press that Bob Lighthizer was “optimistic” that an announcement was “imminent”. John Hoeven said it was possible the December 15 tariffs could be averted.

CNBC reported that Trump met with business roundtable leaders and the CEOs of Cummins, Stanley Black & Decker and Union Pacific.

Over the course of the day, multiple media outlets echoed Dow Jones’s initial reporting that the deal included an agreement to roll back some existing tariffs by half, while scrapping the scheduled December 15 levies.

Stocks held onto solid gains, rising 0.9% at the close. Around 4:30, sources said Trump had signed off on a deal to avert Sunday’s escalation.

10-year yields rose 11bps on the day, a huge move that puts 2% squarely back in play and raises the specter that the pro-cyclical rotation narrative will become the topic du jour again, reminiscent of early September and the first week of November.

TLT was on track for one of its worst 10 days since the election, falling 1.8%.

The offshore yuan, meanwhile, had its best day since August 13, when Trump announced he’d split the next round of tariffs into two tranches. (Duties on the first tranche went into effect on September 1, while the second tranche was the subject of Sunday’s planned escalation).

Earlier this week, Peter Navarro circulated a memo championing the tariffs, only he didn’t sign it. Instead, it was sent from an e-mail address belonging to his pseudonym, “Ron Vara”, who argues that the administration should keep the tariffs in place.

“The White House should get uncertainty out of the market by announcing NO deal until after the election and ride the tariffs to victory'”, “Vara” wrote. He cited Jim Cramer.

Assuming Trump approves the deal, Vara’s recommendations will have fallen on deaf ears, despite his having a “friend” at 1600 Penn.


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