(Bloomberg) -- Compass Point recommends “cautious optimism” about a potential trade deal between the U.S. and China, as “political and practical hurdles” remain, analyst Isaac Boltansky wrote in a note.
Earlier, people familiar with discussions between China and the U.S. said the two are close to a trade deal that could lift most or all U.S. tariffs, as long as Beijing follows through on pledges ranging from better protecting intellectual-property rights to buying a significant amount of American products.
“We should remain cognizant of how this deal plays in conservative circles,” Boltansky said, because President Trump “is undeniably influenced by those headlines.”
Boltansky noted that reported concessions, such as additional purchases and reduced auto tariffs, don’t “appear to represent the structural shift sought at the outset of the trade talks.” Trump spoke directly to conservatives on Saturday, delivering a wide-ranging, largely unscripted two-hour speech at the Conservative Political Action Conference, including resuming swipes directed at the Federal Reserve.
U.S. stocks on Monday retreated as investors sought details of a possible trade deal between the White House and China. The dollar strengthened and Treasury yields slipped.
“The biggest news of last week regarding the U.S.-China dynamic was the failed U.S.-North Korea Summit in Vietnam,” Cowen senior policy analyst Chris Krueger wrote separately.
Trump previously operated along a clear model, Krueger said, as the president “would declare victory and the details would be left to others.” Walking away from North Korea “introduced the possibility that Trump could walk from the upcoming Mar-a-Lago Summit with President Xi at the end of the month,” which might toughen hawkish U.S. negotiators or intensify pressure to reach a deal with China, he said.
Cowen is holding to its call that “Trump will declare ‘peace for our time’ at Mar-a-Lago at the end of this month,” Krueger said. His base case is a comprehensive deal including a continued tariff freeze, along with “substantial Chinese purchases, commitments addressing a broad range of U.S. concerns (e.g., JV rules, intellectual property, removing foreign-ownership limitations, currency), and some enforcement process.”
Goldman Sachs (NYSE:GS) sees the U.S. and China as “more likely to reach some type of agreement on trade later this month, when Presidents Trump and Xi meet,” chief economist Jan Hatzius and managing director Alec Phillips wrote in a note dated March 3. They cited the second postponement of a 25% tariff rate on imports from China, as well as positive signals from the White House.
Goldman’s base case is that an agreement would leave some U.S. tariffs in place, perhaps into 2020. Commodities “rank near the top” in terms of which sectors might be affected, followed by base metals and chemicals, agricultural commodities and semiconductors.
