Fake News? US China Trade Deal? Brexit Clarity? Santa Sighting?

[Viking]

What is happening? Are we really going to get a US / China trade deal? And Brexit clarity? Both on the same day? Or is this just fake news; a hoax. All we need now is a Santa Clause sighting...

 

If both materialize and provide some clarity/stability we could see a nice risk-on rally in stocks (Santa Clause rally) as we end 2019 and begin 2020.

 

(Of course, the US/China trade spat is just getting started. And much needs to be clarified regarding Brexit. But after all the shitty back and forth for years lets just enjoy the moment :-)

[Gregmal]

Which will then become the crescendo; the blow off top; the euphoric rally that signals the end is near!

[woodstove]

The trade issues between China and US haven't been something I've looked at much, but this morning's news sounds interesting.  I gather the details of the deal are to be kept confidential, but one achievement for the Trump admin is an agreement that China will take about $50B/yr of US agricultural exports.  That is said to be about 70 pct higher than prior max annual exports to China.  But is it such a bad deal for China?  I think not.  Recycles some USD holdings, which must be used to buy something, sometime, particularly if China is in a position to stabilize currencies a bit more in future and hence needs to hold less USD reserves.  I think the news of a deal makes sense.  Good for China to get the deal, if can be presented as smart move domestically.  Good for US and Trump admin to get the deal as it addresses economics of Trump electoral base, and also provides "we won" way to back out of troublesome situation.  Good for non-ag business too.  So it's ok and maybe even real deal.

[muscleman]

https://www.wsj.com/articles/us-china-confirm-reaching-phase-one-trade-deal-11576234325?mod=hp_lead_pos1

U.S. and Chinese officials announced a limited preliminary agreement Friday to halt the trade war, with President Trump removing the threat of new tariffs on China and Beijing agreeing to some new economic rules as well as unspecified purchases of American farm goods and other products.

 

 

So this is just a truce, not a real deal. We all know what's gonna happen to these "some new economic rules as well as unspecified purchases of American farm goods and other products.". Nothing will happen. Check what China agreed to in WTO deal and what it actually did.

 

[gokou3]

China to ramp up U.S. buys under trade deal, but skeptics question targets

https://www.reuters.com/article/us-usa-trade-china/china-to-ramp-up-u-s-car-aircraft-energy-purchases-in-trade-deal-source-idUSKBN1ZD0FN

 

Under the trade deal to be signed on Wednesday in Washington, China would also buy over $50 billion more in energy supplies

 

So this is like 2.4 Mbpd of incremental (?) oil purchase from China?  Must be bullish for the US oil producers and midstream companies.

[lnofeisone]

My read is that energy (I'm in the early stages on learning up on agro) buys wouldn't be an incremental addition to previous purchases. It would just be a total of $50B which means going back to previous purchases and adding another $35-40B of purchases. I don't think those purchases will be in oil but nat gas will certainly benefit. I think a few midstream worth a look (MMP, KMI), followed by export facilities (LNG, TELL - a hyper spec stock that could be LNG 2.0 if they execute), followed by producers (I'd say consider looking into EOG, DVN, and maybe WPX).

 

I also think it will be hard to get to $50B/year in energy alone so I suspect there will buying parts and services from SLB, et. al. to meet the remaining commitments of the deal. So lots of ways to play this if it holds.

 

Some back of the envelope calculations for reference:

Let's say we go back to 15M barrels of oil/mo * 12 months * 60 $ /barrel = 10.8B per year in oil. (https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTEXCH1&f=M). China can only accommodate so much of our oil due to the design of their refineries (heavier crude) so I think oil will be capped.

 

If we go back to the LNG imports and get back to 23BCF/ month that gets us to $1B per year in LNG. We are still very short of the $50B mark so I suspect this will be an area of growth. https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-TRADE-CHINA-LNG/0H001PBVL68W/index.html. We can certainly accommodate this growth because we have 7 operational export terminals in the US and can get to 23BCF in about 3-4 days (average time to fill up tankers). China can absorb the LNG and is building 12 more import facilities so they will be willing takers (their eco policies are matching up to that) for years to come. The question will be who will offer a better price - Qatar, Malaysia, Australia, or the US. If gas prices stay as low as they are, we are very competitive even if Asian prices collapse (as they have in the last year).