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Markets crave a ‘booster’ of good news on a US-China trade deal

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President Donald Trump and China’s President Xi Jinping chat as they walk along the front patio of the Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, U.S., April 7, 2017.

Carlos Barria | Reuters

Ever since President Donald Trump said he and President Xi Jinping would meet to sign a trade deal, Wall Street has been hanging on every speculative word about where and when that signing might take place.

So it was not surprising when stocks sold off late Wednesday morning on a Reuters headline that quoted Trump administration sources who said the phase one trade deal could be delayed until December and that Europe is a likely venue. CNBC would later confirm the report.

A November deal was expected, and there were reports that a U.S. location was under consideration, like Iowa, as suggested by the administration, or Alaska and Hawaii, as proposed by China. An absolute deadline for a deal would be Dec. 15, the day a new round of tariffs on Chinese goods is set to go into effect.

Stocks have run up on optimism about trade progress, but have been languishing in the past two sessions, as the market digests recent gains to new highs, and no new information has materialized on the trade front. Trump and Xi had been expected to sign the agreement in Chile on the sidelines of the APEC meeting, but Chile announced last week that it could not host the Nov. 16 meeting due to protests in the country.

‘Booster shot’

“We basically used up the good news and we’re in this time where we need a booster shot. We need some news to keep us going,” said Art Cashin, director of floor operations at UBS.

Art Hogan, chief market strategist at National Securities, said investors are anxious for details on the signing. “Once you find the location, you slap a date on it. Things get signed, and we move on. This would remove a lot of the headwinds,” said Hogan.

Hogan said investors want to see a phase 1 deal that stops the escalation of tariffs and possible rollback of others. “If you stop the escalation, it puts certainty back into the economy and you might even get some cap ex spending which has been missing for the past 18 months,” he said.

Cashin said the market was not concerned about where the meeting will be held, but the report on the timing was key since the longer talks go on, the more chances there are they get derailed. Cashin said he did not believe Xi would come to the U.S. for a meeting because of it could look like he was giving ground to Trump.

No ‘state’ visit

Evercore analysts, in a note Wednesday, also said Xi won’t come to the U.S., and they hypothesized a list of possible trade outcomes.

“President Xi won’t come to the US —not Iowa, Hawaii, Alaska, DC or elsewhere. No ‘state’ visit. The ‘unpredictable’ (Trump) risk precludes this. Mistrust dominates,” the Evercore strategists noted. “The interim ‘Phase 1’ deal is insufficient to command presidential signatures. We expect ministerial-level signing at the ministerial level.”

As of now, Evercore sees only three points of agreement, and the Chinese request for a roll back of existing tariffs was not one of them. They see a delay in the Dec. 15 tariffs, agricultural sales to China and Chinese financial markets open further.

Other policy strategists believe a deal will be reached, including agricultural sales to China and U.S. relief on the blacklisting of Chinese telecom firm Huawei. Dan Clifton, head of policy research at Strategas, said U.S. exports of liquified natural gas have again become part of the discussion, and a source close to the discussions told CNBC energy was part of phase 1 talks.

‘Catastrophic for both sides’

“We’re at the end, and there’s volatility at the end of the discussions,” said Clifton. “But the cost of a blowup here would be catastrophic for both sides. I think you have a 15% chance of a blowup. We’re really trying to move the Rubic’s cube so both sides can walk away and be able to declare victory.”

Tom Block, Washington strategist at Fundstrat, said a deal will get done, and Trump may not need a signing ceremony as much as the opportunity to make a speech about the success of the deal.

“Whether it’s done with a phone call and sending their ministers to sign it, or they can figure out some signing ceremony. I don’t think that’s as important as that they seem to be closing in on a deal,” Block said.

Clifton said the Trump administration is eager to get a deal done because of a softening economy, but China is as well, since it has been concerned about rising food costs and a loss of exports. He said a deal will get done, regardless of whether Trump and Xi meet.

“I think everybody is giving each other an exit ramp. I can feel both sides preparing their part to sell their domestic audiences a deal. That’s why I think there’s going to be a deal,” he said.

Clifton said Trump’s re-election efforts are a factor. He noted that Commerce Secretary Wilbur Ross made the surprise announcement last weekend that he did not expect the U.S. to put tariffs on European autos. Europe was expected to be the next front int he administration’s trade wars.

“This is a major change in policy. Nobody in the administration gets in front of auto tariffs,” he said. “What you’re seeing is the president doesn’t want to put more tariffs in place ahead of the election. That should give you guidance on China.”

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Boris Johnson can turn his victory into history if he can save the UK from division

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Prime Minister Boris Johnson leaves Downing Street for Buckingham Palace where he will seek permission to form the next government during an audience with Queen Elizabeth II at Downing Street on December 13, 2019 in London, England.

Dan Kitwood | Getty Images News | Getty Images

It is just the sort of script one might expect from Boris Johnson, one of the most enigmatically fascinating personalities of our times.

Prime Minister Johnson – who famously craves both public attention and a place in history – won the former and a shot at the latter through a British election victory this week that was the most convincing conservative victory since Margaret Thatcher in 1987. To save the United Kingdom itself, however, he must reverse course, or at least amend direction, on much of what he has said and done to win in the first place.

I opposed Brexit on economic and political grounds yet, at the same time, Johnson might have the political flexibility, the intellectual chops and the Churchillian ambition to confound his critics along the five lines of action he must simultaneously pursue to find his historic place.

  • Most importantly, he’ll have to negotiate a “no-tariffs, no-quotas” trade deal by end-2020 with a European Union that he has disparaged, knowing that it by some distance is the U.K.’s major trade partner.
  • Second, he will have to rapidly restore external economic confidence in a country that has been suffering disinvestment, an economic slowdown, and doubts about its continued role as a European and global financial hub.
  • Third, he should still aspire to get a trade and investment deal with an impeachment-distracted President Trump. At the same time, he should share with voters how unlikely that will be and embrace what might be faster and easier opportunities in Asia, namely negotiating his way into the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
  • Fourth, he’ll have to abandon much of the populist rhetoric that got him elected and embrace his encouraging “One Nation” message of this week that could heal the country’s divisions – and perhaps also slow a European-wide and global populist trend.
  • Finally, he’ll need save the United Kingdom from unraveling by convincing Scotland and Northern Ireland of their future place – while heading off another Scottish independence referendum. A successful EU negotiation will help that.

Media pundits in recent months have compared and associated the rise of Boris Johnson and Donald Trump as populists who have turned their countries’ politics upside down. Yet the comparisons only go so far, given Boris’ bookish, multilingual, multicultural background and intellectual passion.

He was born in Manhattan as Alexander, then raised in Brussels until age 11, before being shipped to British boarding a year after his mother’s breakdown, a life richly chronicled by Tom McTague in The Atlantic last July. Somewhere along the way the quiet child became the boisterous, eccentric British Boris. He developed a comic demeanor, a disheveled mean (and mane), a rapier intellect with a taste for the classics, and an insatiable desire to be liked.

From all of this grew his self-proclaimed ambition to be “world king.”

“I often thought that the idea of being world king,” said his mother of her illness’ impact on Boris, “was a wish to make him unhurtable, invincible somehow, safe from the pains of life, the pains of your mother disappearing for eight months, the pains of your parents splitting up.” The biographer Sonia Purnell says Johnson told girlfriends that his way of coping was to make himself invulnerable “so that he would never experience such pain again.”

The Brexit referendum and— three years later— his election vote are part psychological and part political drama for Boris Johnson, the stuff of a West End musical. His Friday speech on the steps of 10 Downing Street showed how quickly he can change his tune from that of the campaign to one of governance.

Speaking to those voters who opposed him and wished to remain in the EU, he said, “I want you to know that we in this One Nation Conservative government will never ignore your good and positive feelings – of warmth and sympathy toward the other nations of Europe.”

He went further.

“As we work together with the EU as friends and sovereign equals in tackling climate change and terrorism, in building academic and scientific cooperation, redoubling our trading relationship…,” he said, “I urge everyone to find closure and let the healing begin.”

If the U.K.’s economy emerges as robust and healthy, other European countries might wonder about the value of staying in.

That will be easier said than done as Johnson will now have to decide what kind of U.K. he wishes to build – one more akin to its neighbors in the EU or one more resembling a low-tax, deregulated Singapore-on-Thames.

“Brexit will formally happen next month, to much fanfare,” writes the Economist, “but the hardest arguments, about whether to forgo market access for the ability to deregulate, have not begun. Mr. Johnson will either have to face down his own Brexit ultras or hammer the economy with a minimal EU deal.”

French President Emmanuel Macron, enamored by his colleague’s intellect and linguistic skill, has called Boris Johnson “a leader with genuine strategic vision” who should be taken seriously. This week he extended an olive branch while in Brussels, telling “British friends and allies something very simple: by this general election, you confirmed the choice made more than three years ago, but you are not leaving Europe.”

On the other hand, he has warned, the best way to reach the most ambitious trade agreement with the EU would be if the U.K. essentially says “we don’t want to change very much.”

So, the drama will continue. If the U.K.’s economy emerges as robust and healthy, other European countries might wonder about the value of staying in. If Johnson defines his country as too close to the European Union, irrespective of economic logic, his base may well ask what the past three years’ drama has achieved other than serving Johnson’s own political ambitions.

It’s time to raise the curtain on the next act.

Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.



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‘Historic’ deal with China will be good for global growth: Steven Mnuchin

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Treasury Secretary Steven Mnuchin speaks to the news media after giving a television interview at the White House in Washington, December 3, 2018.

Leah Millis | Reuters

The “historic” phase one trade agreement reached Friday between the U.S. and China will boost global growth, according to U.S. Treasury Secretary Steven Mnuchin.

Speaking to CNBC’s Hadley Gamble at the Doha Forum on Saturday, Mnuchin said the partial deal would address a host of issues central to Washington’s trade agenda.

“This deals with intellectual property, this deals with technology transfer, it deals with structural agricultural issues, financial services are opening up, currency understandings, as well as a commitment to purchase U.S. agriculture and U.S. goods,” he said.

Mnuchin also dismissed the notion that the U.S. was pushing back on the rules-based trading system, arguing that a level playing field with China would benefit the global economy.

“For a very long period of time the U.S. was open to China, China was not open to the U.S. There were very strong restrictions and for the first and second largest economy in the world, there should be more trading back and forth and that’s what we’ve been working on, and I think these agreements will not only be good for the U.S., but will be very good for global growth,” he added.

Global stocks surged Friday as Washington and Beijing announced that the partial accord had been reached, averting the next round of U.S. tariffs after a bruising 18-month trade war.

U.S. and Chinese negotiators will now work toward setting a timescale to sign the agreement, which is still subject to legal procedures, with U.S. Trade Representative Robert Lighthizer telling reporters Friday that the two sides would aim to ink the deal in January in Washington.

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Brexit deal will be a ‘good thing for the UK economy,’ US Treasury Secretary says

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Secretary of the Treasury Steven Mnuchin

SAUL LOEB | AFP | Getty Images

Finally completing the Brexit divorce deal between the EU and the U.K. will provide much needed stability for the British economy, U.S. Treasury Secretary Steven Mnuchin told CNBC Saturday.

Prime Minister Boris Johnson won a general election with a thumping majority this week and looks set to complete the first stage of Brexit at the end of January. However, three-and-a-half years of wrangling means it’s begins schedule and that delay has hurt business sentiment and investments.

Speaking to CNBC’s Hadley Gamble at the Doha Forum, Mnuchin said he expects Johnson will now get his deal on Brexit done with his commanding majority in the House of Commons and said the two sides were “absolutely” moving toward trade discussions.

“My expectation is that the prime minister will now get his deal on Brexit done. Which I think is a good thing for the U.K. economy. The U.K. just needs stability on this issue,” he said.

“I’ve been hearing for too long ‘they’re in, they’re out, they’re in, they’re out’ and we’ll begin trading discussions with them. We’re very much looking forward that trading relationship,” he added.

Johnson’s Conservatives now have 365 parliamentary seats, a majority of 80 in the House of Commons. The result, which proved even more decisive than pollsters had forecast, follows a bitterly-fought and divisive election campaign.

In a tweet published Friday morning, President Donald Trump offered his congratulations to the newly-elected prime minister, describing the better-than-expected result for his friend as a “great win.”

“Britain and the United States will now be free to strike a massive new trade deal after Brexit,” Trump said. “This deal has the potential to be far bigger and more lucrative than any deal that could be made with the E.U. Celebrate Boris!”

—CNBC’s Sam Meredith contributed to this article.

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