There’s a sense in which the market has totally forgotten about the “Phase One” trade deal between the US and China.
At the same time, you could argue that the imminent signing of that deal is one of the main factors which helps to explain why equities have been able to rebound so quickly at the first sign of deescalation in the standoff between the Trump administration and Iran.
The reflation narrative that informed the Q4 market zeitgeist was predicated on the idea that between the lagged effect of rate cuts and the consummation of the interim trade pact, the global economy was on the verge of inflecting for the better. That was faded a bit in the first two sessions of the new year, and the risk-off trade that accompanied the assassination of Qassem Soleimani temporarily threw everything into doubt, as markets were suddenly forced to consider a range of extreme geopolitical outcomes and their potential ramifications for asset prices.
But through it all, the two pillars of the Q4 reflation narrative (the idea that last year’s rate cuts are set to start manifesting in better data and the assumption that the deescalation between the US and China would help the global economy find its footing after a rocky 2019) remained in place, helping explain why, once the threat of an imminent global military conflagration fell away on Wednesday, traders and investors pivoted so quickly, even as nobody believes we’ve heard the last from Iran.
That’s the context for China’s announcement on Thursday that Liu He will travel to Washington next week to sign the “Phase One” deal.
This was, of course, previewed by Trump weeks ago, but until today, Beijing hadn’t really delivered much in the way of specifics on the timing or who would be participating in another silly photo op for a notoriously vane US president.
Accompanying Liu to Washington will be PBoC boss Yi Gang, Commerce Minister Zhong Shan, vice minister of finance Liao Min, deputy chief of the National Development and Reform Commission Ning Jizhe, deputy international trade representative Wang Shouwen and unnamed “others”.
Those “others” will not include Xi Jinping, though.
Gao Feng – who made the announcement on Thursday – said Liu will carry at least three titles on his trip: Politburo member, vice premier and top trade negotiator. There was no word on whether he will be designated “special envoy” for Xi. That sounds trivial, but as anyone who’s followed the negotiations is acutely aware, it’s a crucial symbolic distinction.
Gao said he has no additional information to offer about the terms of the deal which, you’re reminded, have still not been released to the public.
Read more in the trade war archive