Ebbs and flows in trade talks have lately become a regular story. Though the start of this week was not smooth in terms of the U.S.-China trade relation, most recent news gives different cues.
President Trump’s latest tweet said, “Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.” The announcement, came at a moment when top U.S. and Chinese officials started two days of trade meetings in Washington.
There was more positive news on the trade front. The U.S. Trade Representative (USTR) has approved 10 out of the 15 exemptions Apple requested for its Mac Pro parts that were being sourced from China. Overall, the two sides have offered signals that they could agree on some measures, though a broad-based deal remains unlikely.
Notably, tariffs on $250 billion of Chinese goods are set to increase from 25% to 30% on Oct 11, while fresh duties of 15% on $160 billion of mostly consumer products will go into effect on Dec 15.
Trump's trade war has cost U.S. importers $34 billion since February 2018, according to data analyzed by Tariffs Hurt the Heartland, a coalition of business and trade groups that oppose the tariffs, as quoted on CNN.
In this scenario, below we highlight a few ETFs that could stage a rally if a mini trade deal is cut.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
The Dow Jones is a trade-sensitive index and performs well if the U.S.-China trade relation goes smoothly. Since the trade truce would leave a significant positive impact on the industrial and manufacturing sector, such stocks should rally on a prospective trade deal. Industrial Select Sector SPDR ETF (XLI) added 0.9% on Oct 10.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
As tariff tensions heat up, inflation in the U.S. economy should perk up. Along with most market watchers, we too believe that companies will try to pass on some cost escalation to consumers. In August, JP Morgan projected that tariffs would cost each American household $1,000 more each year. So, some sort of trade deal is great for consumer stocks and ETFs.
Teucrium Soybean (SOYB - Free Report)
Agricultural products like yellow and black soybean faced a retaliatory tariff from China. Notably, China purchases about half of U.S. soybean. With cues of a partial trade deal, hopes of stronger demand for soybean from China is rising. There was also a report from the U.S. Department of Agriculture that output is expected to fall. Naturally, soybean prices soared to the highest level in about three months.
China A iShares MSCI ETF (CNYA - Free Report)
At the time of writing, Chinese stocks reached a two-week high on a trade deal possibility. The White House is mulling over an option of a currency pact with China as part of a partial deal that could see a “planned tariff hike next week being suspended and part of what it regards as a first-phase agreement with Beijing,” as quoted on economictimes. CNYA added about 2.1% on Oct 10.
VanEck Vectors Gaming ETF (BJK - Free Report)
U.S. casino companies like Wynn Resorts (WYNN - Free Report) , Las Vegas Sands (LVS - Free Report) and MGM Resorts International (MGM - Free Report) have considerable exposure to China. WYNNand LVShave respective revenue exposure of about 69% and 53% to China. So, casino gaming ETF BJK should benefit.
United States Oil Fund LP USO
Any kind of trade truce between the Unites States and China would alleviate global growth worries to some extent, facilitating the demand for oil. Hopes for deeper OPEC output cuts and the latest explosion in a state-owned Iranian oil tanker are the other drivers of an oil price rally.
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