Hopes for deal on trade give stocks a boost

Markets run up on reports that US will cancel some tariffs on China, reduce others

Major US stock market indexes rallied Thursday after President Donald Trump said he was close to reaching a trade deal with China.

On Thursday morning, Trump tweeted, "Getting VERY close to a BIG DEAL with China. They want it and so do we!"

"This is the president helping the Santa Claus rally even more," Quincy Krosby, chief market strategist at Prudential Financial, told CNBC. "This is as much of a signal as we needed."

US trade representatives made no official announcement.

The Wall Street Journal, citing "people briefed on the matter", said Thursday that American negotiators have offered to cut existing tariffs as much as 50 percent on Chinese imports valued at $360 billion and cancel a new round of levies scheduled to be imposed Sunday.

In return, the US wants China to agree to purchase large amounts of American farm products, increase protections for US intellectual property rights and permit greater US access to China's financial services sector.

Negotiations would continue. In a "snapback" provision, tariffs would return to their original levels if China fails to honor its side of the deal.

Earlier this month, Trump said a trade deal might not be reached until after the November 2020 election, causing the New York Stock Exchange to drop about 450 points.

"In some ways, I like the idea of waiting until after the election for the China deal," Trump said Dec 3 when in London to attend a meeting of the North Atlantic Treaty Organization.

Trump's words, seen by some as a negotiating tactic, may have made it more difficult to reach a deal, another analyst believes.

"We've had a rocky ride because Trump likes his headlines," said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, an independent research organization in Washington. "In my view, Trump's rhetorical hardball did not make the deal."

Some analysts reacted cautiously to Thursday's news in view of Trump's prior statements.

Usha Haley, the W. Frank Barton Distinguished Chair in International Business and a professor of management at Wichita State University who specializes in China, is one of them.

"I think President Trump's tweets reflect his emotional state at the time more than any impending regulator or policy developments," she said. "Certainly, the devil will be in the details in any agreement between the US and China."

Andrew Karolyi, a professor of economics and management at Cornell University, told China Daily that "what global investors eagerly seek is confidence in a well-structured and sustainable trade policy between the US and China".

"Confidence is a freer flow of goods and services will guide a freer flow of capital. Gamesmanship in ongoing negotiations to gain an upper hand has not inspired confidence to now," he said.

On Thursday, the Dow Jones Industrial Average closed at 28,132.05, up 220.75 points, or 0.79 percent. The Nasdaq Composite closed at 8717.32, up 63.27, or 0.73 percent. The S&P 500 closed at 3168.57, up 26.94 points, or 0.86 percent.

The ongoing trade dispute hasn't seriously disrupted the US economy. November's job numbers were solid, income is rising and consumer spending is strong, government statistics show. On Wednesday, the Federal Reserve said it saw no need to stimulate the economy by cutting interest rates for the fourth time this year.

"The trade war drag on growth is likely to fade over the course of 2020," Goldman Sachs said on Wednesday in a research note to investors. "This is part of the reason why we expect GDP to accelerate to 2.25 to 2.50 percent in 2020."