Shares Boosted by U.S.-China Pact

Sev­eral re­tail­ers ben­e­fited by the tem­po­rary agree­ment to shelve plans to in­crease levies on Chi­nese im­ports.

WWD Digital Daily - - News - BY KATHRYN HOP­KINS

The trade truce be­tween the U.S. and China might only been a tem­po­rary fix, but it cer­tainly did the trick for Wall Street.

The Dow Jones In­dus­trial Av­er­age soared by more than 440 points at one point Mon­day and closed up 287.97 points, or 1.1 per­cent, to 25,826.43, while the S&P 500 also ended the day 1.1 per­cent higher to 2,790.37.

In­vestors were buoyed by a 90-day wait­ing pe­riod that U.S. Pres­i­dent Trump and China’s Pres­i­dent Xi Jin­ping agreed to on Satur­day. The wait­ing pe­riod prompted the U.S. to shelve plans that would have boosted tar­iffs on roughly $200 bil­lion worth of Chi­nese im­ports to 25 per­cent from 10 per­cent on Jan. 1.

The agree­ment also meant that Trump’s threat to slap levies on an­other $267 bil­lion has been put on ice. Such a move would have most likely dragged the fashion sec­tor into the fray. So far, the in­dus­try has avoided any big hits in the trade war, with the no­table ex­cep­tion of hand­bag-mak­ers.

Ac­cord­ing to Ike Boru­chow, a re­tail an­a­lyst at Wells Fargo, the re­tail­ers that were set to be hit the hard­est by the tar­iff in­creases could breathe a tem­po­rary sigh of re­lief — and en­joy some stock gains. They in­cluded Fos­sil Group Inc., which closed up 7 per­cent to $20.69; Skech­ers USA Inc., 4.9 per­cent to $28.31, and Steve Mad­den Ltd., 2.3 per­cent to $32.98.

“Skech­ers had be­come the prover­bial ‘poster child’ for tar­iff risk given that they source over 90 per­cent of goods from China, so we be­lieve that this stock could have one of the most mean­ing­ful pos­i­tive re­ac­tions to the G-20 news,” he said.

Among the other re­tail­ers and fashion com­pa­nies trad­ing higher were G-III Ap­parel Group, up 9 per­cent to $43.69; PVH Corp., 3.3 per­cent to $114.25; Tif­fany & Co., 4 per­cent to $94.65; Nike Inc., 3.8 per­cent to $77.94, and Wal­mart Inc., 1.1 per­cent at $98.75.

The news from the week­end might not boost the mar­kets for too long as an­a­lysts ze­roed in on the fact that 90 days is an ex­tremely tight time for the ne­go­ti­a­tions, par­tic­u­larly for “struc­tural changes” on im­por­tant is­sues such as forced tech­nol­ogy trans­fers, in­tel­lec­tual prop­erty pro­tec­tion, non-tar­iff bar­ri­ers, cy­ber in­tru­sions and cy­ber theft.

“This is all con­struc­tive news for mar­kets, [ but] the over­ar­ch­ing con­cerns in the U.S.-China re­la­tion­ship re­main, and thus should im­ply cau­tion for mar­kets past the short-term. The ‘struc­tural’ is­sues are not ones that we be­lieve can be eas­ily tack­led in a 90-day pe­riod,” said Sacha Ti­hanyi, deputy head of emerg­ing mar­kets strat­egy at TD Se­cu­ri­ties.

“We still can­not rule out tar­iff in­creases and con­tentious ne­go­ti­a­tions go­ing for­ward,” Ti­hanyi said.

If a deal can­not be made, the Trump ad­min­is­tra­tion warned tar­iffs would rise to 25 per­cent at the end of the 90-day pe­riod. It would also mean that the prospect of levies on a fur­ther $267 bil­lion would be more likely. If that hap­pens, the to­tal amount of tar­iffs would sur­pass the value of all Chi­nese im­ports the U.S. ac­cepted last year.

Even though the truce was only a tem­po­rary one, Trump took to his beloved Twit­ter to hail the meet­ing a great suc­cess, telling his 56.1 mil­lion fol­low­ers that “very good things will hap­pen.”

“My meet­ing in Ar­gentina with Pres­i­dent Xi of China was an ex­tra­or­di­nary one. Re­la­tions with China have taken a big leap for­ward. Very good things will hap­pen. We are deal­ing from great strength, but China like­wise has much to gain if and when a deal is com­pleted. Level the field,” he tweeted on Mon­day.

What­ever the out­come might be, for now the pause gives com­pa­nies more time to pre­pare in case higher tar­iffs are im­ple­mented next year. In par­tic­u­lar, No­mura’s Alexan­der said com­pa­nies will con­tinue to front load im­ports from China dur­ing the 90-day pe­riod.

“Due to the re­cent uncer­tainty and the new dead­line on the tar­iff hike, we be­lieve ex­port front-load­ing re­lated to the $200 bil­lion list may ex­tend to Jan­uaryFe­bru­ary 2019,” said Lewis Alexan­der, chief U.S. economist at No­mura. “Based on our es­ti­mates, ex­port front­load­ing may boost the year-on-year ex­port growth by 1.8 per­cent­age points in the fourth quar­ter 2018 and 2 per­cent­age points in Jan­uary-Fe­bru­ary 2019.”

Traders work on the floor of the New York Stock Ex­change.

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