Trade progress expectations fuel market strength

6 November, 2019

US major indices close at record-breaking highs on reports of progress in talks with China and increasing confidence in economic growth.

First, reports emerged suggesting China is reviewing locations for Xi Jinping to meet with President Donald Trump to sign the first phase of a new trade deal. U.S. Commerce Secretary Wilbur Ross had said in an interview that the two countries have made good progress in phase one of negotiations.

Secondly, Chinese newspaper, the Global Times, wrote that China may temporarily hold off from imposing tariffs on up to $3.6bn worth of U.S. goods that had recently been authorized by the WTO.

And thirdly, insiders report that U.S. officials are in discussions to roll back levies on $112bn worth of Chinese imports, which include holiday shopping products like electronics, and clothing.

China plugs bond sell-off

China’s central bank, the PBOC, cut interest rates on Monday to stop the bond sell-off caused by investors’ expectations of monetary tightening. The move to cut one-year lending facility to banks successfully halted the downward pressure on government debt securities.

The PBOC supplied the market with a 400bn yuan as medium-term lending facility, thus replacing 403bn yuan worth of mature loans, at a lower rate of 3.25%.

China’s response to its own economic slowdown in recent months has been  unexpected and positive all at the same time. Instead of going with a stimulus program like the EU, China is intent on fixing the trade–taking steps not to escalate tensions. The American president is now paying dividends as the Trump administration is working out to cancel more than $100bn worth of tariffs on products that could impact holiday season shopping.

Skeptics remain on the fence with the 5 bp reduction saying that this will soothe investors temporarily; some analysts say that more things should happen before a there is a real policy shift towards easing,.

Uber lost $1.2bn

Ride-hailing company Uber reported losses of $1.2bn in its Q3 earnings yesterday. Its new CEO insists that the company is on the right path to profitability, which he expects in FY2021.

Following the release, Uber shares fell 6% on Monday after hours. Revenues beat estimates at $3.8bn but its total result remained in the red. Its core business accounts for 75% of the company’s sales and is covering for other strategic courses of the company’s development like self-driving technology, deliveries, and electric bikes and scooters. All the divisions besides rides lost money last quarter.

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