Thread by @Trinhnomics

Not just China, KOSPI & Nikkei & other Asian rally also fading today as people are selling the facts after buying the rumours.

But data totally upbeat in December for China trade!!!

Details on US-China trade-deal purchase agreement; used 2017 export figure to China (US perspective) & the total & what is in the USD200bn purchase agreement.

Question: Is the 35+40 services in addition to existing ~50bn of services b/c the US already exports above commitment??

Phase-1 Deal:

25% tariff on USD250bn goods of mostly intermediates in place (note that 250 is just based on those items value in 2018 & is a 25% tax on items on not amount); 120bn of goods (consumer & intermediates) have 7.5% tariffs.

China agreed to purchase USD200bn goods👇🏻

What did China get in the Phase-1 Deal:

a) Cancellation of tariffs Trump escalated in August 2019 in tweets - yep, he did that - of consumer goods that he didn't have to stomach to raise👈🏻
b) Floor to deterioration of US-China relationship & put trade-war behind it in 2020👈🏻

Why? Deterioration of exports & corporate earnings & slowing investment are biting into domestic economy & consumption - an anchor of growth.

Plus, Trump was credible in escalation so better not leave to chance. What it gets is what we've seen in Q4 - improvement of sentiment 👈🏻

What does the US president get:
a) A trade-deal for 3 Nov 2020 to show progress (see details above)
b) Not having to raise tariffs on consumer goods that'd hurt his base & hurt his 2020 chance
c) Having a dovish Fed + trade-war fading
d) Tariffs ON & supply chain reshuffling ON👈🏻

Phase 1 does the following ->putting a floor on the deterioration of US-China relationship:
*Remove tariffs that were threatened but but existing ones remain, like 25% on 250bn & 7.5% on 120bn
*Have 200bn purchases that look similar to existing purchases w/ energy & agri higher👇🏻

But markets rejoiced anyway b/c it feared the worst, hoped for the best, and got a new normal, which was last year's worst case & this yr best case: 25% tariff on half of Chinese goods = norm. As long as tariffs are on, then investment reshuffling continues. Hence, markets down.

Key diff b/n a Phase 1 deal in Jan 2020 vs last yr is, wait for it:

FED CUTTING RATES BY 75BPS & EXPANDING BS.

Yes, & my thesis has always been that trade-war has a lot of bark but less bite than the Fed, e.g. the USD. Fed wire is ~700-800trn per year! Trade-war is what? 320bn?

FYI, US tariffs to stay until election (so basically most of this year) & that is roughly HALF of US imports from China primarily covering US imports of intermediates from China.

As I said, Phase 1 trade-deal in Jan 2020 looks like H2 2019 so no change except Fed rate cuts 👈🏻👈🏻