U.S. Stock Markets: Tariff Rollback or New Tariffs – Something Has to Give

The major U.S. stock indexes closed marginally higher on Thursday in a lackluster trade as investors waited for solid news on a hoped-for “Phase One” agreement between the United States and China before the latter gets hit with a fresh round of tariffs on December 15.

Helping to underpin the markets were upbeat comments from President Donald Trump and Treasury Secretary Steven Mnuchin that the trade negotiations between the two economic powerhouses are “on track” and “going well.”

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3117.43, up 4.67 or +0.15%. The blue chip Dow Jones Industrial Average finished at 27677.79, up 28.01 or +0.10% and the technology-based NASDAQ Composite ended the session at 8570.70, up 4.03 or +0.05%.

China Wants Rollback of Existing Tariffs

For weeks, investors have been told by China that a successful outcome of the “Phase One” agreement hinges upon the U.S. rollback of existing tariffs.

Beijing’s top priority in any phase one trade deal with the United States is the removal of existing tariffs on Chinese goods, China’s Global Times newspaper reported on Sunday.

“Sources with direct knowledge of the trade talks told the Global Times on Saturday that the U.S. must remove existing tariffs, not planned tariffs, as part of the deal,” according to the report.

Global Times, published by the official People’s Daily newspaper of China’s ruling Communist Party, also cited another unidentified source close to the talks as saying U.S. officials had been resisting such a demand because the tariffs were their only weapon in the trade war and giving up that weapon meant “surrender.”

Mixed News on Trade Driving This Week’s Price Action

This week’s strong price swings to start December have been sparked by mixed news on trade.

President Trump contributed to the price slide on Tuesday when he said he could wait until after the 2020 election to make a deal with China and after the Chinese said they wanted tariffs removed as part of a phase one trade deal.

On Wednesday, the major averages snapped a three-day losing streak after Bloomberg News reported, citing sources, that both countries were inching closer to securing an agreement on the amount of tariffs that would be rolled back in a limited trade deal. President Trump also said Wednesday that he believed trade talks with Beijing were going “very well.”

It Could All Come Down to What Happens on December 15

Traders are saying the markets could whip back and forth until we see what happens on December 15^th to get some sort of clarity in terms of how to move forward in the near term.

China and the U.S. have 10 days to reach a trade deal before additional U.S. tariffs on Chinese goods takes effect. Those levies would target an additional $156 billion in Chinese goods.

“Unless there’s a deal announced in the next week and half, or the U.S. unilaterally decides to delay or cancel the next scheduled set of tariffs, we’re going to have more of these kicking in,” said Brian Nick, chief investment strategist at Nuveen. “That’s not at all priced into the market.”

“In fact, expectations that those tariffs will be removed along with the October ones has been one of the reasons we’ve been able to melt up so quickly,” Nick said.