Debate on ministries' budgets

Global stocks rise on hopes of US-China deal

Formal trade agreement likely later this month, according to reports

LONDON • Global shares rose yesterday amid growing optimism that the United States and China will reach a trade agreement as soon as this month.

United States President Donald Trump and Chinese President Xi Jinping might seal a formal trade deal around March 27, given the progress in talks between the two countries, The Wall Street Journal reported on Sunday.

The two nations have imposed tit-for-tat tariffs on billions of dollars worth of each other's goods, roiling financial markets, disrupting manufacturing supply chains and shrinking US farm exports.

A source briefed on the negotiations told Reuters that the two countries appear close to a deal that would roll back US tariffs on at least US$200 billion (S$271 billion) worth of Chinese goods.

Stock markets welcomed the news, with European markets following their Asian counterparts higher.

"The key question is - will all tariffs be removed instantly, or will they be gradually dialled back?" wrote research analyst Lukman Otunuga of FXTM.

"While the renewed risk appetite is seen boosting European and US stocks, investors should consider how much upside is left, given that markets have been actively pricing in the possible resolution to the trade saga."

Both Mr Trump and Mr Xi have an incentive to avoid further tariff increases that may hurt the global economy. Mr Xi does not want to see job losses that could undermine the Communist Party's legitimacy, while Mr Trump has linked his success to the economy and stock market gains.

In Asia, Chinese shares were the biggest gainers, with the blue chip index up as much as 3 per cent.

The closely followed MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.3 per cent. The index has risen almost 10 per cent so far this year.

Japan's Nikkei index strengthened more than 1 per cent.

March is expected to be a crucial month for global markets.

Britain's Parliament will vote on an agreement to leave the European Union, the US Federal Reserve will hold a policy meeting that could yield clues on its plans for interest rates and balance sheet reduction, and the European Central Bank will hold its scheduled policy meeting this week.

"While it will take time for economic data to stabilise from the current slowdown, policy shifts by central banks and governments, especially in the US and China, should help support investor confidence for now," said Asia-Pacific chief market strategist Tai Hui of JPMorgan Asset Management.

The mooted trade deal would require Beijing to follow through on pledges ranging from better protecting intellectual property rights to buying a significant amount of American products, people familiar with the talks said.

"While we have all these great headlines about what could be achieved under a US-China trade agreement, we are still a little way away," said JP Morgan's global market strategist Kerry Craig.

"There could be a chance for a disappointment. It could be phased in over a number of years."

Both Mr Trump and Mr Xi have an incentive to avoid further tariff increases that may hurt the global economy. Mr Xi does not want to see job losses that could undermine the Communist Party's legitimacy, while Mr Trump has linked his success to the economy and stock market gains.

Chinese concessions in any deal are likely to fall short of US demands for deep change in the way the world's second-largest economy works. Revamping decades of state planning will not happen overnight, Chinese experts argue.

And President Xi faces political realities at home, where being seen as kowtowing to Mr Trump would be less palatable than navigating the near-term impact continued trade tensions might have on China's own slowing economy, they say.

One Chinese official told Reuters that China's domestic reform is a long-term process.

"If the United States carries out overall restrictions or pressure based on its own interests, China will not accept it," the official said.

Trade expert Tu Xinquan of Beijing's University of International Business and Economics said it would be difficult for Mr Xi to agree to US demands that China revamp the role of state-owned enterprises and other core industrial policies.

Mr Xi would likely be prepared to go as far as to give "visible, politically influential commitments" to Mr Trump, such as to buy more American goods and improve protection of intellectual property rights.

REUTERS, BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on March 05, 2019, with the headline 'Global stocks rise on hopes of US-China deal'. Print Edition | Subscribe