In a crucial day for global financial markets, China and the United States are scheduled to sign the first phase of an economic and trade agreement at the White House today. Although the event has been fully priced by the market, investors will gauge its impact through the details of the agreement. The dollar is now flat above 97 and spot gold is close to the crucial 1550 mark, which could see a major break whether or not the deal meets market expectations.
A sign of goodwill ahead of a trade deal between China and the United States
China and the United States will sign the first phase of the trade agreement at the White House on January 15, 2020. To attend the signing ceremony, Chinese lead Liu he led a delegation to Washington from January 13 to 15.
Trump announced on Twitter late last month that he would attend the signing ceremony in person on Wednesday. The signing ceremony, which the Trump administration has invited at least 200 people to attend, will take place in the east room of the White House, Reuters quoted White House officials as saying. Senior Chinese government officials and lawmakers from U.S. states hit by the trade war are expected to attend.
In a gesture of goodwill, the US has dropped its designation of China as a currency manipulator ahead of a planned first-phase trade agreement between the US and China on January 15. It was seen as a gesture of reconciliation before the deal was signed.
The us Treasury Department on Thursday cancelled its decision to declare China a “currency manipulator” in its belated semi-annual report on its currency policy.
The Treasury’s semiannual currency report is traditionally submitted to congress in April and October. The US Treasury made the change in its belated semi-annual report, two days before China and the US were due to sign the first phase of the trade agreement. That removes a big hurdle before the two countries sign a trade deal this week.
Analysts said the removal of the currency manipulator label was largely symbolic, though it was a positive sign ahead of the first phase of the agreement.
The US has shown a willingness to ease tensions with China, which means that the era of a truce in the long-running trade war between the US and China can be expected just as China and the US have resolved one of the main points of contention over the currency issue, theft said on the 13 Jan.
Stephen Innes, chief market strategist for Asia at AxiTrader in New York, said the yuan is the best barometer of the trade situation between China and the United States, and with the yuan strengthening ahead of the first phase of the deal, it shows the potential for further improvement in trade relations. And the removal of the U.S. designation of China as a currency manipulator is the clearest cooling of trade tensions yet.
Bank of America currency strategist Ben Randol said the move by the U.S. Treasury ahead of this week’s signing of the first phase of the trade deal to drop the designation of China as a currency manipulator was expected and was another positive move to cool the trade conflict.
While the designation of China as a currency manipulator has no practical impact on the Chinese government, the cancellation is an important symbol of goodwill toward Chinese officials, according to people familiar with the discussions cited in the media.
“The removal of the U.S. designation of China as a currency manipulator adds to the optimism that existed before the trade deal,” said Minori Uchida, chief currency strategist at MUFG Bank in New York.
However, the financial media pointed out that two times a year, the Treasury’s currency report, observe how American policy is the market is an important index of a currency manipulator, bring the report tool, as with other countries for trade agreement after the market is likely to take currency report seriously, undoubtedly trauma mechanism of this for a long time.
“This time it must have been used as leverage by trump,” said Stephen Doyle, foreign currency strategist at Tempus Inc in Washington.
More important is the detail, right?
The first phase of the deal between the US and China, due to be signed at the White House on Wednesday, marks the first step towards resolving an 18-month damaging trade dispute between the world’s two largest economies.
The focus then turned to the details of the trade deal, which ran to 86 pages. Some worry that a rally in U.S. stocks could leave stocks vulnerable if things go wrong, and modest volume suggests caution.
U.S. trade representative Robert lighter said on Monday that a translation of the text of the first phase of the US-china trade agreement was nearing completion and would be released Wednesday ahead of the signing ceremony. “We will announce it before the signing on Wednesday.”
There were reports overnight that the US would not cut tariffs further and that existing tariffs could remain in place until after the US election. CNBC website reported that day, the news, the stock market panic.
Peter Boockvar, chief investment officer at Bleakley consulting group, said the news was nothing new and not surprising. “The assumption is that tariffs will not be removed until a second phase agreement is reached. Mr. Trump said a few days ago that there would be no phase ii deal until after the election. I have always believed that tariffs will not be removed until we reach a phase ii agreement. We are still stuck with these tariffs, which are a drag on trade and manufacturing growth.”
Myron Brilliant, executive vice president of the U.S. chamber of commerce, said the first phase of the trade agreement was deeper and more positive than initially thought. He said the agreement was a relief to both sides and that the implementation of the agreement would be critical to building trust and successful negotiations.
But while the first phase of the deal was successful in “stopping the bleeding” of the trade war, it was more important for both sides to show a commitment to moving forward with the second phase, Brilliant said. “Significant challenges remain ahead, given that the core structural issues that are at the heart of the dispute remain unresolved, particularly in the tariff area,” he said.
Michael McCarthy, the chief strategist at CMC Markets in Sydney, warned: “the market seems to be pricing in the signing of the deal. This is buying because of rumors and selling because of facts. Even if it’s just delayed, you could see a very negative reaction.”
With news of the deal already priced into the market, it seems safer to be prepared, as traders point out that the likely response to the first phase of the deal will be “buy when the rumor starts and sell when the fact comes out”.
Will gold make a big move?
Ahead of the us-china trade deal, spot gold continued to rally in Asian morning trading on Wednesday, edging closer to the 1550 mark, awaiting further news.
While the signing of a “phase one” trade deal should continue to support risk sentiment, investors could still get nothing if any details disappoint expectations, analysts said.
Gold is currently trading around $1,540 and could fall further once a “phase one” trade deal is formally signed with the US. However, if the details of the deal do not impress the market, gold could rebound. Technical traders will continue to keep a close eye on price movements around $1,555. A daily close below that level should signal a move toward $1,535. Instead, moving above $1,555 can open the door to $1,570.
“While we believe gold is somewhat crowded and long positions remain close to extreme levels, a significant decline in gold is unlikely,” TD Securities strategists wrote in a note on Monday. We expect support in the $1,515-1,550 range.”