US market review: US and China sign their “Phase One” deal

2020 began with fresh geopolitical tensions amid signs of rising hostility between the US and Iran. Nevertheless, by mid-month these pressures had eased and the signing of the “Phase One” trade agreement between the US and China provided a boost for investment sentiment. Investors’ buoyant sentiment proved relatively short-lived, however, as fears over the spread and impact of the coronavirus began to take hold.

  • The US economy posted its slowest annual growth since 2016
  • The US withdrew its accusation that China was a currency manipulator
  • Technology stocks performed well in January

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2020 began with fresh geopolitical tensions amid signs of rising hostility between the US and Iran. Nevertheless, by mid-month these pressures had eased and the signing of the “Phase One” trade agreement between the US and China provided a boost for investment sentiment, driving US share prices to new highs. 

“They’ve taken advantage for a long time” (President Trump on Europe)

Investors’ buoyant sentiment proved relatively short-lived, however, as fears over the spread and impact of the coronavirus began to take hold. Chairman of the US Federal Reserve (Fed) Jerome Powell said that he expects the virus to hamper China’s economic growth, but it is still too soon to determine the impact on the US. The Dow Jones Industrial Average Index fell by 1% over January, while the S&P 500 Index declined by 0.2%. The Nasdaq Index bucked the trend, rising by 2% following a strong performance from information technology stocks. 

According to credit ratings agency Fitch, while the signing of the interim trade agreement will provide a boost for business confidence and the stability of global growth, its full impact will depend on the implementation of the deal. Fitch believes the deal “pauses but does not end the US-China trade war”. Progression to a “Phase Two” deal will depend on the successful implementation of Phase One, and Fitch warned that Phase Two negotiations will include “contentious” issues, including structural economic reform in China, suggesting that significant uncertainties remain. The US also withdrew its previous decision to accuse China of currency manipulation during the month: as part of the “Phase One” trade deal, China agreed to refrain from competitive devaluation.

At the World Economic Forum (WEF) in Davos, President Trump subsequently turned his attention from trade with China to trade with Europe, stressing that he wanted a trade deal and commenting: “They’ve taken advantage for a long time”. 

The US economy expanded by 2.3% during 2019, posting its slowest annual growth since 2016 as the impact of tax cuts faded. The economy expanded at an annualised rate of 2.1% during the fourth quarter, unchanged from the third quarter. Disposable personal income rose by 1.5% in the fourth quarter, compared with 2.9% in the third quarter. The International Monetary Fund (IMF) expects growth in the US to moderate from 2.3% in 2019 to 2% in 2020, easing further to 1.7% next year. 


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