Trade optimism and Brexit

U.S. Treasury Secretary Steven Mnuchin said last Friday tariffs on $250 billion worth of Chinese imports that were set to rise from 25% to 30% on Oct. 15 will not go into effect. That followed an announcement from U.S. President Donald Trump that both sides reached a "very substantial phase one deal" that will address intellectual property and financial services concerns, and include purchases of about $40 billion to $50 billion worth of agricultural products by China. Citi analysts pointed out that during normal times, China's purchase of U.S. agricultural products was about $20 billion, which makes the numbers Trump announced appear "overly large." "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." They added that Washington's decision to not raise an additional 5% tariffs on $250 billion of Chinese exports to the U.S. this week will "have little impact on the Chinese economy at the margin given the tariff impact has mostly played out." For the immediate week ahead, markets will be looking out for whether there is another deal or not between the United Kingdom and the European Union ahead of the Oct. 31 Brexit deadline, analysts at Singapore's OCBC Bank wrote in a Monday morning note. "While the market was soothed by seemingly positive outcome in the talks between the British and Irish PMs last week, the week opens to an unfortunate start with EU negotiators warning that UK's plans are not yet good enough to be the basis for an exit agreement," the OCBC analysts said. Both sides were reported to have said on Sunday that a lot more work would be needed to secure an agreement on the U.K.'s departure from the bloc.

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