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U.S. Stocks Turn Lower as Investors Sour on ‘Phase One’ Trade Deal

James Hyerczyk

The major U.S. stock index futures turned lower for the pre-market session Monday morning and hedgers returned to the Treasury bonds, gold and Japanese Yen after China said it needed to have further discussions before it would sign off on the so-called phase one trade deal President Donald Trump announced on Friday.

The early market price action has the S&P 500 Index opening about 0.42% lower, the Dow off by 95 points or 0.35% and the NASDAQ Composite trading about 0.54% lower.

China Wants More Talks Before Signing ‘Phase One’ Deal

According to a Bloomberg report, China trade officials wanted more talks by the end of October to discuss details of the “phase one” trade deal.

This now has investors wondering if the additional tariffs originally scheduled to start on October 15, and suspended as of Friday, are back on. We’ll probably hear more about this from the Trump administration later in the session.

On Friday, President Trump announced that the first phase of a deal with China had been agreed, though officials on both sides said much more work needed to be done.

However, the deal that does not include many details and Trump has warned it could take up to five weeks to get a pact written. Furthermore, analysts are saying it appears to be more of a “temporary” than a real trade pact.

Investors took no chances upon hearing the news. Besides driving stocks lower and erasing some of Friday’s gains, hedgers drove December Treasury Notes 0.46% higher. December Comex gold futures rose 0.73% and the Japanese Yen jumped 0.24% higher. These protection moves are likely to increase if investors continue to turn sour on the deal.

Asian Markets Up, Europe Down

Shares in Asia rose in reaction to Friday’s partial trade deal news. Investors had no reaction to the Bloomberg report, which came out after the Asian markets had closed.

The major bourses in Europe turned lower after the report was released. According to CNBC, the pan-European Stoxx 600 slipped 1.1% during the morning trade, with basic resource stocks losing 2.6% to lead losses as all sectors traded in negative territory.

The Bloomberg report was not a complete surprise as Citi analysts pointed out in an earlier report.

“Despite what appears to have been achieved in the October talks, we remain cautious on an eventual trade deal,” the analysts wrote in a note. “The US offers are far from what China has been demanding, as showcased in its June State Council White Paper:  reasonable purchases of US imports, removal of existing tariffs, and giving the trade document a balanced treatment.”

In other news, customs data showed that China’s import and export figures were worse than expected in September, with exports falling 3.2% on the year in U.S. dollar terms, while imports declined 8.5%, according to Reuters.

This article was originally posted on FX Empire

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