Why We Can’t Get Too Excited about the Trade War Deal

Trade war tensions appeared to have cooled two days ago.

Now, we’re not so sure.  

On Friday, the U.S. and China agreed to the first phase of a trade deal that will delay 30% tariffs on $250 billion worth of good set for this week. Reportedly, the deal will address intellectual property and financial concerns.   It’s why the Dow exploded more than 350 points on the day.

“I agreed not to increase Tariffs from 25% to 30% on October 15th. They will remain at 25%. The relationship with China is very good. We will finish out the large Phase One part of the deal, then head directly into Phase Two. The Phase One Deal can be finalized & signed soon,” tweeted President Trump.

Unfortunately, we can’t get too excited – at least, not yet.

Futures fizzled after Bloomberg reported that China wants “further talks” this month to iron out further details of the “phase one” trade deal.

“While the negotiations do appear to have produced a fundamental understanding of the key issues and the broader benefits of friendly relations,” reported China Daily, “the Champagne should probably be kept on ice, at least until the two presidents put pen to paper, as based on its past practice, there is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests.”

Some of the Street aren’t too confident the trade war is cooling either.  Morgan Stanley notes the trade deal with China is “uncertain” at best, as noted by MarketWatch.  “There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk.”

Unfortunately, it’s another wait-and-see situation that could negatively impact markets further.

Stay tuned for more on this developing story.