Economists Are Skeptical That Trump-Xi Truce Will Rescue Growth

(Bloomberg) -- Financial markets have smiled on the apparent weekend warming of relations between the U.S. and China. This time, economists aren't buying it.

Following a meeting with Chinese President Xi Jinping on the sidelines of the Group of 20 gathering in Osaka, U.S. President Donald Trump pledged to delay plans for duties on an additional $300 billion in Chinese imports and green-lighted U.S. companies to maintain some business with Huawei Technologies Co.

Stocks in Asia early on Monday celebrated the thawing in the trade war, alongside rising U.S. equity futures and the yuan, while Treasuries, gold and the safe-haven yen all fell.

Yet the prospects for another jolt in fragile negotiations probably will limit any changes in bets for Federal Reserve interest-rate cuts. And a very different tone swept through economists' research notes after the Trump-Xi summit, with analysts finding little reason to judge that the so-called truce will help cushion ailing global trade and growth data.

Here's a sampling of economists' reactions to the latest Trump-Xi agreement:

Australia & New Zealand Banking Group

“We could have just changed the date and republished our old report on the last G-20 Summit in December 2018,” Raymond Yeung, chief economist for greater China at Australia & New Zealand Banking Group Ltd., said in a note Saturday. “The U.S. has again held off new tariffs in exchange for China's purchases of agricultural products. However, the U.S. did not promise that it won't escalate its trade measures.”

Citigroup

“The U.S.-China ceasefire handshake came in line with our expectations, but our main takeaway is that investors and policy-makers shouldn't stop worrying about trade,” Citigroup's Cesar Rojas and Global Chief Economist Catherine Mann said in a Sunday note. “There was no material de-escalation of tensions but only a pause until further progress. The impact on the real economy is ongoing from both the current tariffs and the uncertainty on the potential escalation.”

ING Economics

“Neither the U.S. nor China reported that any of the disagreements which proved to have been deal breakers in May are closer to being resolved,” ING's Raoul Leering, head of international trade analysis, and greater China economist Iris Pang said in a note Sunday.

“So, much work needs to be done to prevent another break up of negotiations. China's promise, according to the U.S., to import more agricultural products from the States while the U.S. postpones new tariff hikes, is not very different than what was already agreed upon in December last year and proved, in the end, to be insufficient for a deal.”

TD Securities

“The outcome of the G-20 also lowers the tail risk of tariffs going up on the remaining $300 billion of U.S. imports from China,” TD Securities analysts said in an e-mail to clients. “This could spur a risk-on reaction as that tail risk gets priced out. However, we think that the risk-on reaction may be limited for several reasons.”

The analysts pointed to how there is no time-frame set for further talks, U.S.-China issues being structural in nature with little resolution in sight, and a lack of detail on what equipment U.S. suppliers are allowed to sell to Huawei. The note also mentioned critical economic data, including U.S. and China factory sentiment.

Macquarie Securities

“During our recent roadshows, the majority of investors still feel highly uncertain about the prospect of any trade agreement,” Larry Hu, head of China economics at Macquarie Securities Ltd., wrote in a note Sunday. “As such, the temporary truce reached during the G-20 meeting could only do so much to lift sentiment.”

United Overseas Bank

“Positive sentiments are likely to prevail today as investors react to the resumption of U.S.-China trade negotiations and the possibility of relaxation in the ban on selling to Huawei,” analysts at United Overseas Bank in Singapore wrote in a note Monday.

“But a trade truce outcome from G-20 has already been discounted, and a final agreement still remains elusive when we interpret the Chinese state media's reaction which rightly highlighted that ‘agreement on 90% of issues' and the probability of a final agreement are independent outcomes.”

DBS Bank

“Unlike the previous truce at the Buenos Aires G-20 last December, there is significantly less optimism that the world's two largest economies can paper over their differences and rivalry to achieve a trade deal,” Philip Wee and Eugene Leow, FX and rates strategists at DBS Group Research, said in a note Monday.

“Having been ‘once bitten, twice shy,' businesses and consumers are likely to be cautious on spending, wary that talks can break down ending with more U.S. tariffs of 10% or 25% on the remaining USD $325 billion of Chinese goods.”

To contact the reporter on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Sharon Chen, Jeffrey Black

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