• Market Crumbs

It Took 18 Months To Get A Verbal, Watered Down Phase 1 Trade Deal

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"We’ve come to a very substantial phase one deal. We have come to a deal, pretty much, subject to getting it written. It’ll take probably three weeks, four weeks, or five weeks." These remarks came from U.S. President Donald Trump on October 11 following high-level trade talks in Washington with Chinese negotiators. 

Through the close of Wednesday, which coincidentally was December 11, the S&P 500 had gained 5.8% since the two sides "agreed in principle" to a watered down phase one deal. For those two months, the administration continued to pump "trade talks are going well" and "China badly wants to make a deal" headlines despite what Trump said on October 11. 

Trump, who doesn't watch the stock market, coincidentally tweeted at 9:35 yesterday morning "Getting VERY close to a BIG DEAL with China. They want it, and so do we!" Algos immediately panic-bid everything, sending indices to fresh record highs.

Shortly thereafter, markets then reached a new level of absurdity in the ongoing trade war as the administration once again reached a "deal in principle." According to Reuters' sources, "The written agreement is still being formulated, but they have reached an agreement in principle." 

As part of the deal, U.S. negotiators reportedly offered to slash tariffs already in place on $360 billion in Chinese goods by as much as 50%. They reportedly also offered to suspend new tariffs scheduled to go into effect this Sunday on $160 billion in Chinese goods such as toys, computers, phones and clothing. 

So what happens next? That's a good question, because there is reportedly not going to be a signing ceremony. Better yet, the contents of the "deal" will be sealed and never made public. There's reportedly verbal agreements about issues such as agricultural purchases, technology transfers and intellectual property. However, with a sealed deal that isn't in writing, the likelihood of China standing by those commitments is unlikely. Furthermore, phase two of the negotiations are reportedly set to begin after the 2020 elections.  

While it's anyone's guess what the next chapter of the trade saga holds, much of what Market Crumbs posted months ago still holds true. On October 10, Market Crumbs wrote "The bottom line is this whole process has become a complete farce and is bad for markets as they swing on the whims of fake, real and repeated news." This entire trade war has proven how easily the market can be manipulated by saying a few keywords.  

A few days later Market Crumbs wrote "The irony is the trade talks were intended to help ordinary Americans, but it is the top 10% who own most of the stocks that are benefiting from the market continuously rallying on hopes of a trade deal." Market Crumbs followed up on this a few weeks later, illustrating how farmers throughout America are not rushing to buy bigger tractors. They are the ones who were supposed to benefit the most from a trade deal but have turned out to be some of the hardest hit. 

So while this deal will be touted as an accomplishment, the reality remains verbal commitments are far from the full, comprehensive trade deal on paper that markets have priced in all along. Either way, most people will be glad they won't have to see the same trade deal headlines every day and can get back to debating other issues such as the Fed's not-QE QE and whether they should cut or raise interest rates. 

Leftover Crumbs

  • Just like the FOMC. The European Central Bank left interest rates unchanged yesterday while saying it will continue to purchase €20 billion in financial assets per month for "as long as necessary." "The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon," the ECB said. In her first meeting as ECB President, Lagarde said "I'm neither a dove nor a hawk. My ambition is to be this owl." 

  • The world's first $2 trillion company. Saudi Aramco exceeded a $2 trillion valuation on its second day of trading yesterday before closing the day with a market capitalization of $1.96 trillion. Interpret it how you wish, but the $2 trillion valuation is now almost double Apple's valuation. In what some may argue are clear signs of a market top, Saudi newspapers ran front page headlines such as "Aramco at the top of the world" and "A dream come true."

  • Things you see at a top? Following similar moves by Schwab and Square, Robinhood will offer its users the ability to buy fractional shares of stock. The goal is simple—lure in as many traders as possible. "We have so many investors that just want to dip their feet into the market and put ten dollars in," Robinhood CEO Vlad Tenev told CNBC. "We think this will empower even more people to invest." The only question is, if these companies are so keen on enabling people to invest with little money down, why have they waited more than ten years into the longest bull market ever to do so?

  • They want to become a rental car company too. Ridesharing company Lyft is entering the rental car market through a new service called Lyft Rentals. The service will be available through the Lyft app for select users in the Bay Area and Los Angeles. "With Lyft Rentals, we’re giving riders the flexibility to rent a car for weekend getaways, business trips, or even to run errands," Lyft said. Lyft, which has seen its stock decline 47% from its IPO day high, appears desperate to try anything to turn the company around. 

  • Some people may just stick with coffee or soda. PepsiCo announced it will launch Pepsi Cafe, a coffee-infused cola with nearly twice as much caffeine as Pepsi, next April. PepsiCo wants to beat Coca-Cola, who has already launched a similar drink named Coca-Cola Coffee internationally, to the U.S. market. "We want to be first to market, and launch this really in the right way," said Todd Kaplan, Pepsi’s vice president of marketing.