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Shares in Asia jump on hopes of China-US trade agreement

Shares in Asia jump on hopes of China-US trade agreement

On Monday 13th of January, Asian shares rose on hopes of a Phase One US-China trade agreement to levels last recorded 19 months ago. Asian markets have yet to see any of the specifics included in the deal but expectations that the deal will be signed soon has riled fresh optimism amongst traders and investors.

European stocks were less optimistic after the Euro Stoxx 50 futures dropped by 0.05 percent reaching 3,778. FTSE futures increased ever so slightly by 0.02 percent to 7,531, and German DAX futures moved by 0.01 percent to 13,493.

Investor sentiment for the US S&P 500 stock futures was bullish Monday after jumping 0.31 percent to 3,274.8.

MSCI Inc: What is it?

According to Investopedia.com MSCI Inc “is an investment research firm that provides indices, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds. MSCI provides its clients with investment tools from Barra, Financial Engineering Associates, RiskMetrics, Institutional Shareholder Services, Measurisk, and the Center for Financial Research and Analysis. It also publishes indices that are widely available to the investing public.”

MSCI’s index of Asian shares, except for Japan, rose by just over 0.60 percent, reaching its highest level since 2018.

Investors in Asia, more specifically in China are looking forward to economic growth and trade data that is scheduled for this week, as it could give an insight into how the economy is performing since it has engaged in a trade war with the US.

Japan’s Nikkei dropped sharply during the previous week after tensions between Iran and the US escalated following Washington’s decision to assassinate the Iranian military commander Qasem Soleimani on the grounds of preventing imminent terrorist activity.

The much anticipated signing of the Phase One trade deal is set to take place on Wednesday 15th of January in Washington, which would mark the beginning of the end of the prolonged trade war between the world’s two largest economies that has had undeniable impacts on global economic growth and business investments.

A Phase One trade deal would greatly benefit global economic growth because it would clear away the uncertainty and costly tariffs that have dampened investments. Nevertheless, the Phase One proposed trade deal has not been released to the general public, which has sparked uncertainty as to just how comprehensive the proposed deal is and whether both sides will be willing to implement the terms and conditions. The Trump administration has warned on multiple occasions that if China does not deliver on its obligations that will be agreed to within the deal it will reintroduce and slap tariffs on Chinese goods and services again. Some economists consider this as a good incentivizing technique whereas critics have argued that this scaremongering only hinders any possible cooperation with the Chinese Government.

What does the US want from the trade deal?

Washington wants China to improve the way it safeguards US intellectual property and data, it also wants China to stop manipulating its currency and to increase its imports of US goods and services, especially agricultural produce, by roughly 200 billion USD in the space of two years.

However, President Trump faces the same issue that former presidents have faced in the past; even if China signs the Phase One trade deal there are no guarantees that the Chinese government will fulfill its obligations.

The Trump administration has rejected the criticism that the Phase One trade deal is a revision of previous attempts to reform the way China engages in trade with the rest of the world. Instead Washington argues that the Phase One trade agreement is enforceable, because if China does not live up to its side of the agreement then the US could retaliate threatening the integrity of the Chinese economy.

During an interview on Fox News on Sunday 12th of January 2020, Secretary of the Treasury Steve Mnuchin said:

“Ambassador Lighthizer has led a very, very large team across all the different agencies. Almost every single one of our agencies have been involved in this. And this is really a historic transaction. Now, it’s is not everything. And, as we have said, there will be a phase two. But this is the first time we have had a comprehensive agreement with China on technology issues, agricultural issues, financial services, purchases, and has a real enforcement mechanism. So, this is a big win for the president.”

“There is a real enforcement provision. And if they don’t comply with the agreement, the president retains the authority to put on tariffs, both existing tariffs and additional tariffs.”

Wall Street was left shaken, and bonds surged on January 10th after the US Nonfarm payrolls, a key economic indicator, revealed forecasts of 162k fell short of the actual 145k figure. Data from the NFP report showed that the US unemployment rate has continued its downward slope, creating the perfect trading environment for risky assets.  

The US dollar remained stable at 97.373 against a basket of other currencies as the British pound dropped by 0.24 percent to 1.3028 USD following comments from policymakers at the Bank of England suggesting that they would support an interest rate cut before the end of the month.

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