Markets Uncertain After Messy China-U.S. Deal Rollout

It has to do with China. The details that we know at this point the both sides seem to have agreed upon is a There does appear to be some text that has been agreed upon and be the December fifteen tariffs will not go into affect Chinese negotiators saying that US has agreed to roll back some of the existing tariffs. President Trump tweeting out uh that perhaps some of the levies will be reduced, but sort of unclear

as to what that is. Joining us here in our interactive broker studios, Leland Miller, chief executive officer of China beige Book International, and we've been framing a lot of the trade negotiations in the light of who does does the trade war hurt more the US or China. Can you give us a sense of whether that is a legitimate frame to view the negotiations through that. Basically, China's hurting so much that they need to come to the table. It's a it's a good framework, but it's only one

of the many frameworks. I mean, you also have to look at what President Trump feels as pressure as you approach. That's why we're doing a deal right now. So there's there's various pressures on the on the on the two sides, and you know, China is hurt more by tariffs and in the US does have more leverage, but President Trump has more time sensitive pressure right now. So there's, uh, there's a lot going on, and I think both sides have been pushing towards a deal. And this is where

we start. When you talk about China saying that they are going to roll back some of their tariffs in tandem with the US doing the same, how big of a victory is that? I mean, can you give us a sense of what kind of tariffs China does put on US imports and imports from other nations. Well, the problem at the very beginning for the Chinese is that they didn't have a reciprocal amount even close to be able to put tariff for tariff on US goods, so

they applied UH tariffs. But these were never particularly damaging. The companies they hurt the most were ones that we're sort of facing it form both directions. They were paying China tariffs and they were paying US tariffs. They're sort of caught in the middle. So this is the pullback on the Chinese side is important in that it's another element of the escalation, but it's it's not the headline here.

The headline is certainly what the Chinese are getting on teriff roll back and what the or reduction and what the US is getting in terms of reforms outside of purchases, which is which is the real big question right now? Well, and have we gotten any kind of detail on that whatsoever? No, And I think that's one of the reasons that this thing has been in flux all day long. What was

being announced yesterday, Uh, it was interesting. Almost every news source had a different twist on what we're supposedly coming out, and but everybody had this gigantic, some level of gigantic deal with huge rollbacks and and this is very interesting from our perspective because very recently, even I mean this past week, there was still a lot of internal discussion amongst the you know, the administration's team on whether the best method to move forward was rate reductions or rollbacks,

and so there there didn't see to be an agreement. Yet what we're seeing come into play right now is it looks like neither one out. They're both part of the solution, and you're gonna see a tariff rate reduction at first, and then you're going to probably see I think this is what's what's next. You're gonna be seeing at some of these other tariffs rolled back as the

Chinese deliver on their purchase agreement. So this is sort of a combo deal that's that's being put in there so that the US maintains a little bit more leverage. Do we have a sense of whether the Phase two negotiations are baked into this Phase one deal? In other words, of time frame, what the issues are going to be something to get uh, you know a little bit more

into the public domain. So so what I've been saying for several months now is that there there's not going to be a Phase two or a Phase three um now I have to I have to tweak that now because what Phase one has become is a multi phase agreement on itself, so that now Phase one B is going to be the equivalent of Phase two. And so this is basically people are gonna be able to call

anything anyway they want. If whatever happens today in signing, you know, the next few days will be part of this first phase and the next part of it will be an extension of Phase one. But will it be Phase two or Phase one B? I mean, this is going to start getting really confusing. I'm just imagining the sort of uh, the Roman numeral outline that we're creating for Phase one is going to be extensive. What is

the implication for the Chinese economy? In other words, will this allow an acceleration or at least uh ceasing in the deceleration that we've seen. Uh, it may not. It won't stop the deceleration of the Chinese economy overall, because that has a structural reason having to do with the fact that the Chinese economy has too much debt. But what the Chinese have been trying to do, they're trying to do here. They've been trying to do since the very beginning of the trade war is avert some of

the worst case scenarios. They want to make the situation better for themselves. It's not tariffs that are that are crushing growth in China, but these make it very difficult to enact any type of reforms to allow businesses to go bust because there's there's just additional pressure added on. So the Chinese can lessen the amount of pressure from tariffs and from Trump, then all of a sudden it becomes a little bit easier to do the things that

they need to do to fix the economy. All right, and so just can you give us a sense of the lay of the land in China's We've heard a lot about defaults and and picking up in China. How are things going? Well. We're gonna have data coming out in the in the coming days, and so I don't want to jump the gun on this, but what I will say is this, there is an enormous amount of credit being pumped to the system in China, and we saw that in Q two, Q three, we saw it

early in our Q four data. There is this idea that that the Chinese economy is not getting sufficient stimulus. It's nonsense. We're seeing some of the highest credit provision levels that we've ever seen all the way back ten years in China Beige Book. We're not seeing the heavy infrastructure stimulus stuff yet we may never see it, hopefully we don't. But we are seeing plenty of credit going to firms from the banking sector, from the shadow banking sector.

Of bond sales at at at an all time high. So there is plenty plenty of reason why they're keeping this thing fluffed up. And I think if you also get a relief from some of the tariff pressures, then you may see a little bit of improvement in the coming coming weeks and months. Leland Miller, thank you so much for coming in today. Fantastic insightly Lin Miller chie thinks I get the officer of China Beige Book International

joining us here in our interactive broker studio. Quite a friday of news with We've got the China and US trade deal UH coming to some sort of fruition. We're

getting some conflicting details. The most concrete aspect that we do know is that the US will not impose the December fifteen tariffs, both sides agreeing on that with Chinese negotiators saying that, and then President Trump following up with a tweet less clear about whether the US would roll back any existing tariffs, with China saying that they would

and President Trump saying that they won't. How does a treat or negotiate with all of this data and figure out what to do in joining US now to speak about just that? David Coudla, He's chief executive officer and chief investment strategist Mainstain Capital Management. David, what don't you make of today? Good morning, Lisa. Well, I think that you know this is actually good news for investors and good news for the markets. Uh, there's a lot of

confusion about what the Phase one deal really constitutes. But the good news for the markets and good news for investors is what we know at least is there's no further escalation of the trade war. The tariffs that we're going to go in on December fifteen won't go in. There won't be any retaliatory traiffs from uh the Chinese.

And you know, the tariffs that were going in for the US we're not only punitive on on the the US tariffs for the Chinese were not only punitive on Chinese goods, but they were going to impact a lot of US companies as well, so it was very important in that respect. The UH, the result is is is we see no further escalation and and that's what the markets want to hear, right, That's what the markets want

to hear. That's what we've been hearing all along. And yet you're looking right now at an SMP basically flat, the nastack up to tents of a percent, the Dow basically unchanged. I mean, how come we're not seeing a bigger pop. Well, there could be a little bit of by the room or sell the news. Because we've been hearing this over the past couple of days. I think there's been some expectation that this is what we get,

that the tears. I think there's been an expectation by the markets that the tariffs would not go into an effect. So we've had a pretty good week for the market the last couple of days. Um, so you know we've we've got you know, green for the Dalla Nastac flat

on the s and P five hundred. But the last couple of days, you know, we've had or at least you know, yesterday, pretty good market and I think though that if you take the combination of this UH and UH certainty on Brexit, with Boris Johnson's big win and what we were seeing with action out of the Fed and what's coming there, we've got a constructive environment for stocks here through the end of the year and headed into Okay. That's actually something similar to what Carcadona, Chief

US Economists was saying earlier this morning. He was saying, if you get some sort of truce where you don't get the Desummer fifteen tariffs, we have that the UK election over, we're probably going to get Brexit pretty easily next month. That's going to to your turbo charge the US economy. How much do you think that that will

translate into significant gains in US equities and other risk assets. Well, it's interesting when when we look at all the factors and we've had three quarters of negative earnings growth or basically earnings contraction and probably going to have you know,

struggle in the fourth quarter again with earnings. We look for earnings to improve in UH, but earnings just haven't mattered really this year, as is evident by the advance we've seen in the major indexes, and even with uh, you know, all the anxiety over the trade war and the uncertainty over Brexit, these other factors. What it's really come back to, UH, I believe, we believe is the FED and the amount of liquidity that they are injecting

into the system. We had at this time last year a very hostile Fed UH in terms of their tone towards the market, and that was a big part of what we think, you know, big part of the sell off we saw last year nineteen six percent by by Christmas eve of last year, the fourth quarter from September twenty through December. The FED changed their tone and the markets did a lot better starting on December and did well all year. Quantitative easy, Quantitative tightening has turned to

quantitative easing. We've gotten that somewhat forced on the FED through these repo operations. But that money going into the system, that injection of liquidity is more money all the same that's going into It's making its way into into equities, making its way into the financial markets. And you know, we go back to that old adage, don't fight the FED. And I think that's one of the most important catalysts for the markets going forward. And that money is coming

to the system, and it's pushing asset prices higher. David, that's a really elien point, especially as we see yields go lower today on this deal, and this comes after they rose quite a bit yesterday, yields up priced down with the prospect of some sort of trade deal looming

ever imminent. And the idea is that you know, how high can treasury yields go given how much liquidity the FED is pumping into this system, and that that kind of reality where you have stable rates and you have a constructive business environment, is going to be perfect for US equities. And that's what people have been saying. What kind of returns are you expecting next year? Uh? For the SMP. Well, we've obviously had a better year this year than than many would have expected, and and I

think that next year we could be surprised again. Uh. You know, I could give the normal forecast that everyone gives will get somewhere between six and nine percent returns that you hear a lot of people forecast every year. But I think I think next year we've got an election year. I'll say the same thing I said last

year that the economy better than many expected. We had so many predicting a recession, so many predicting bear market last year at this time, and you know, I just wouldn't be surprised if we see double digit returns for the major indexes next year. Interesting and just real quick also because we do have you from Michigan, I'm wondering what the trade deal could mean for the auto industry given how beaten up. Are not beaten up, but but certainly with auto sales in decline for as long as

they have are decelerating to the degree they have. Well, it's very important because uh, you know, and we've talked about this, it's it's just uh, the auto industry and when we talk about, uh, these tariffs on imports, it's not the same environment of four or fifty years ago. Uh. There is so many uh parts and subsystems and vehicles

that are shipped abroad and cross international lines. When you look at between Michigan and Canada and between the US and Mexico, it's it's literally as if the assembly lines criss cross those international lines. Though it's very important that uh there's certainty certainly for supply chains and for where vehicles are being produced and ship to that that the auto companies have certainty as they're determining where they put plants,

where they developed their supply chains. And because UH many of the automakers US and otherwise are global automakers. Now you know, what's going on here is very disruptive to the US automakers GM Ford, UH Chrysler and automakers around the world. So, you know, as much as anything, they want to see some certainty around in this. So the more this gets worked out, the better. David could Loud, chief executive officer and chief investment strategist at Mainstay Capital Management.

Just to reiterate the headlines about China that the US has agreed not to implement the threatened December fifteen tariffs. We also have some discussion of a trade deal that has been signed off on at least by President Trump and Chinese negotiators. Exactly what that looks like, though, does remain to be seen. We are seeing corn and soy prices in particular rise on the heels of this. Michael Hurts are joining us now, an agricultural reporter for Bloomberg

joining us for Chicago. Michael, can you first just give us a sense of what the impact of the trade skirmish between the U S and China has had on the agricultural sector over the past two years. Sure, so, I mean exports to China. You know that one of the top markets in the world have plunged from the US. They've started to recover a bit as the two sides have you know, had various bouts at the negotiating table, but still remain below levels you know seen as recently

as and farmers are are struggling with prices. UM prices have gotten a little better, but there's still more supply than there is demand and they really want China to come back. What do we know so far about the agricultural component of the trade deal that appears to be struck between the U S and China. At the press conference that they just held, you know, eleven PM in Beijing, UM they said they would notably increase UM imports, but

and that's kind of all we have. They did say they want to keep things UM on w t O rules and make purchases as the market dictates, which traders kind of took that as as China kind of continuing to buy UM as best suits them, which could be from the US, it could be from Brazil on the as far as sowbeans go. So the details remain elusive, and China did not confirm sort of reports of commitments of as many as fifty billion dollars of imports in and people are really hoping for that alright, So, um,

what are some of the questions now that remain? Basically, you know, can can they can the import fifty billion dollars worth of US add goods? Is that even possible? Back in seventeen they imported about twenty billion, so this would be kind of double more than double pre trade war levels. And you could look at Hong Kong and that's maybe another four billion or so. And even if you add those together, um, getting to that fifty billion dollar number, even if China has committed to that is

still just kind of a major question mark. One thing that I was struck by in the Beijing press conference by Chinese trade negotiators. They were saying that they're trying to develop their own internal agricultural and UH and poultry for example, exports and they were talking about exporting poultry. Is that going to be part of this that basically they want to develop their their products as well on this side, and are trying to promote that or is

this just a messaging issue? You know that is that is? Um? This sort of a tip for tad on the poultry. Um they allowed for some I believe it's prepared Chinese poultry products to come into the US in exchange for reopening the Chinese market to US poultry. UM. So I think people think there might be some prepared products that would come back into the US. How how good do you think this deal will be for for farmers across America?

I mean, do you think that this sort of certainty in China coming back into the market will save off some of the increase in bankruptcies that we've seen in the Upper Midwest? You know, I think that you know, it's still really remains to be seen. The fact that China was you know uplade on aliety having a press conference and publicly saying that you know, a phase one

has been reached. Is is great news for farmers. But now kind of getting down to the brass tacks of how this is all going to play out, UM, it should be good? How good is kind of the question? Can you give us a sense of where we are in the shakeout? Because there have been uh, bankruptcies that have been with an increasing pace in the Upper Midwest. And this doesn't just have to do with trade skirmishes. This has to do with the price of grain and a whole host of other issues as well. Where are

we in that shakeout? Yeah, so, you know, the US government has has doled out you know, I think twenty four billion dollars in aid payments as these trade disputes have gone on, which has helped um with farmer finances. But this could be sort of a reckoning um in the next six months to a year as as this stuff really starts to play out and farmers need things to get better to kind of smooth out a few down years on finance. Is um. It's getting to be.

Credit conditions are are maybe improving slightly for farmers, but they're very stressed and they need some help. Michael hurts Or, thank you so much for being with us. Michael hurts Or, agricultural reporter for Bloomberg News, joining us from Chicago. We've been talking a lot about trade and the idea that the US and China have come to some sort of agreement, but we can't let that overshadow the incredible victory of

Boris Johnson in the United Kingdom overnight. If you take a look, with all seats declared, the Conservatives had won three hundred and sixty five of the six hundred and fifty seats in the House of Commons. That is a gain of forty eight to Labors two oh three seats, which is down fifty nine, a massive win, possibly the most since the nineteen thirties. Joining us now Professor j Ney Blanche flower Well. He's professor of economics at Dartmouth College.

He's in Geneva. What are you doing in Geneva, Danny Well? Interesting days. I'm actually in Geneva. I gave a keynote to the big conference here on full employment, sort of relevant to what's going on around the world and relevant to what's happened in the UK where basically lots of people are hurting. And I'm just looking at the list of seats that the Labor Party lost in the traditional Labor heartland Burnley, Derby, Glasgow, all around the country, Newcastle

underlying Peterborough, Skundel. I mean, this is a devastating defeat and I think really driven by on the doorstep that the election in the end didn't come down to Brexit. It came down to the leader of the Labor Party who people saw unelectable um and have nothing to offer them. So I think it's very interesting. And the other point is that the polls, the opinion pollship have been bad

in the past, got it absolutely spot on, okay. So I guess that is the takeaway here, that that that that UK citizens are just sick of Brexit discussions, just want it done. Or is the takeaway really that Brexit was sort of the back drop issue and then it was a lot of other things that took the four

that really drove Boris Johnson to victory. Well, I think it was that, I mean the message in a way it was I mean, if you think of the Trump message, make America great again, and Boris's message was get Brexit dumb and nobody had to faint his clue what Jeremy Corbyn's view on Brexit was the biggest issue with fifty years in Britain. He said, well, I'll wait and I'll think about it later, because everyone knew that he was

against it. I'm One of the big things that also happened was that he had the issues of anti Semitism in the Labor Party in the In the week before the election, he was asked on the one interview four times would he condemn anti semitism and he wouldn't. I mean, howing was this only name you wouldn't condemned anti semitism, but you didn't, and that had a huge electoral effect.

So I think it was that Boris had a simple message, wanted to get things done, and the opposition just looked clueless and the and the interesting thing in a way was that the economic package that label was given was probably the most sensible spending on the NHS, infrastructure spending and actually some re nationalizations that were hugely popular. But

that wasn't the message that came through. And on the doorstep it turned out the breaks it was kind of third It was about that this is not a credible opposition. I'm scared to death of having somebody like Jeremy Corbyn in there. And the other one is that the leader of the Third Party lost her seat and socially so she resigned from the Third Party. So this is this is the worst thing, the worst defeat for Labor since n How Jeremy Corbyn has not designed I don't know.

I mean I was on his advisory channel in two thousand and sixteen along with Picoty and just Stiglets, the Nobel Prize winner, and we all bailed out when we realize very quickly that this was a disaster in the making. We had nothing to offer, And so it's a combination of things. And I think the take the take home in a sense of the United States is that populous leaders with simple messages which appeal to people who are hurting and don't really explain in full detail what they're

going to do is electorally populous. What we saw in two thousand and sixteen, it may well be what we'll see in two thousand twenty. And Trump is going to take this as an indicator that maybe you know, if he goes along with this kind of message, he's going to go get reelected. So, given your political experience, and given your experience on the Bank of England Monetary Policy Committee as a member, can you give us a sense of what the victory means for the economy which you

expect going forward for the United Kingdom? Yeah, I mean, I mean, I think the first thing is at least it settles the uncertainty markets know what's coming. We've seen a surge in the stock market, we've seen home builders

utilities pushing forward, we've seen a gain in town. But my suspicion is that the NPC, it is voted at this meeting next week, may seriously consider doing a rap cup because the uncertainty has sort of being resolved, but the economy is sitting in the doldruns and the last meeting there were two dissenters looking for for a cup. I mean, so the reality is that the Bank of

England is the only show in how right now? I mean, well, we'll get a new chance of the Exchequer and maybe in the next two or three weeks you and I will be talking about the appointment of a new governor that Boris is going to make. My suspicion is he might appoint my old my old college roommate, Jerry Lyons, who was his chief economist in London. He and I were pluditutes to get what he may well do. But we're wait, wait, wa wa wa. We you were roommates.

You're not getting away with that, with saying that your roommates. What was he like as a roommate? Well, I mean, I mean when I say a roommate. He was actually my office mate. You know, we didn't share deegs, but we worked together. He's so let's get this clear, right many answer is a very well trained economist called PhD in economics and macro, got very well experienced in the City of London and a lot of money. Worked as an economist for for Boris Johnson when he was the mayor.

And it's been strongly pro Brexit. I mean, he and I have disagreed on that, but you would certainly call him a credible trained economist. Um. He's been very kind of pro green, pretty pretty strong on boosting the economy and might well result in you know, some some move to the center. But my suspicion is now Boris can do whatever Boris likes, and I think Jerry lies now goes to the top of the heap. Um. I mean

he's a smart, good guy. I disagree with. But you know, would you say to me it would he be a good appointment? I would say, yeah, I could work with the guy. All right, Just one minute here, I'm just wondering going forward. You know, people are saying that business confidence is going to be unleashed and people will spend again, is that accurate given the uncertainties that remain with an actual trade deal with the UK and the EU. Well,

it's a really great question. I mean, obviously that the thing we've talked about is get breakfast done and you say, okay, we're going to do this in January. But Macron immediately came out today and said, well, okay, now the real business start. What are you going to do. Are you going to negotiate a deal with US that you're going to instead of just coming out with you know, with dreams, with dreamland stuff. Are you going to seriously negotiate with

US um and and compromise. So I think that's what happens. And then of course what happens is you go into a long transition period. You need to resolve the issues in Ireland. He's certainly going to be faced with the prospect of losing Scotland. I mean that this mp UM basically swept the board in Scotland. They're going to ask for a second referenda. They're actually going to say we want to leave the Europe, leave the UK and go back to the EU. So there are going to be

all these kinds of issues. In a sense, you win this thing, and you say every things easy, and now the hogs stops. So I think you know Macron has immediately gone in the system. What's your negotiating position. You can't make up this stuff. You've actually got to sit at the table with us, and you can't pick cherry pick a little bit that you like if you want to do that. It's a no deal breakfast. Yes, Unfortunately we have to leave it there. I could speak with

you all day. Danny blanche Flower, professor of economics at Dartmouth College. Thank you, thank you, thank you for joining us and giving us that fantastic perspective from Geneva. Thanks for listening to the Bloomberg p L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter

at Lisa A. Bram Woods One. Before the podcast, you can always catch us worldwide on Bloomberg Radio.