US-China Trade Talks & Global Optimism

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The partial deal between the United States and China in the recent round of trade talks has given impetus to the global economic activities as global oil along with some regional markets have reciprocated to this deal with showing upward mark.
As per partial deal, the US and China have agreed on some main points which have yet to be signed. The signing could take place in the middle of November in Chile on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit.
China has pledged to rapidly increase purchases of US farm goods to US$40-50 billion (S$55 to S$68 billion) a year a sharp rise that would be more than double the level in 2017. In 2017, before the trade war started, China imported US$19.5 billion of US farm output, falling to just over US$9 billion in 2018.
The news brought a positive reaction from oil markets with Brent closing on $60.51 (Dh220) and West Texas Intermediate (WTI) on $54.70. Oil markets managed to snap a few weeks of losses as risk appetite returned last week. The outlines of a US-China trade deal propelled oil prices higher, helping Brent futures close up 3.7 per cent and WTI up 3.6 per cen.
The outlook for 2020 remains clouded by the outcome of US-China trade talks, central bank action, and trade growth among other factors but it should be plainly apparent to markets that no major agency is revising their demand forecasts higher. Oil prices likely to remain between $55 to $60 in future based on the US- China trade talks along with continued geopolitical tensions in the Middle East.
The geo-political risk premium following the September attack in Saudi Arabia has been removed but events this past week shows why it could suddenly re-emerge. So, while the pendulum continues to swing between demand and supply worries, we expect that WTI and Brent over the coming weeks will stay range bound around $55/b and $60/b respectively.
Brent crude oil returned to $60/bpd after receiving a fresh geo-political boost. This after Turkish forces entered northern Syria and after an Iranian tanker was struck by missiles the impact of this ongoing uncertainty highlighted the upside price risks at a time when the market is focused on the negative price impact of slowing demand growth.
Friday’s news of a US-China trade deal also saw global markets reacting positively, with that sentiment expected to carry over during the week. In the US, the Dow Jones was up by more than 300 points on Friday, with Nasdaq and S&P500 both closing by more than one per cent. In Asia, stock markets across the board also saw a rise with the Nikkei closing over one per cent higher, and in China the Shanghai Stock Exchange was up 0.88 per cent. Europe’s markets also saw rallies with news of a potential Brexit deal being made between the UK and the EU. The Europe Stoxx 600 was up by more than 2 per cent on Friday.
Reflecting Friday’s surge in global equity shares after the United States and China appeared to move closer towards a resolution of their trade war all major Gulf stock markets rose on Sunday,.
US President Donald Trump on Friday outlined the first phase of a deal to end the trade dispute with China and suspended a threatened tariff hike.
The emerging deal, covering agriculture, currency and some aspects of intellectual property protections, would represent the biggest step by the two countries in 15 months to end a tariff tit-for-tat that has whipsawed financial markets and slowed global growth.
Saudi Arabia’s index rose 0.8% after four days of losses, with Al Rajhi Bank increasing 2.8%.
National Shipping Co.(Bahri) surged 10% as shareholders as of October 13 will be eligible for the latest declared dividend of 0.5 riyal per share. The shipping firm has risen in recent sessions following an extension of a shipment contract with the Ministry of Defence that increased the total deal value to 421.7 million riyals ($112.45 million).

Author is Editor of ‘Mélange int’l Magazine’ and ‘ The Asian Telegraph’ can reached arshans21@yahoo.com

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