MANHATTAN (CN) — Markets posted minor gains on Tuesday, overcoming initial jitters over a U.S.-China trade deal that proved to be less a dead albatross and more of a possum.
At the closing bell, the Dow Jones Industrial Average gained 130 points, a 0.5% increase. The S&P 500 gained slightly less, while the Nasdaq posted a new high mark of 10,131 points.
Investors began the day’s trading still rattled due to comments on Monday from White House trade adviser Peter Navarro, who said the U.S.-China trade deal was a dead duck.
During an interview on Fox News about increasing political tensions with China, Navarro was asked whether the trade deal was over. “It’s over, yes,” he said.
Hours later, however, President Trump overruled Navarro — who later recanted his own statements, saying Fox News had taken him “wildly out of context” — and said the deal was still on.
“The China Trade Deal is fully intact,” President Trump tweeted Monday evening after stock futures sharply plummeted. “Hopefully they will continue to live up to the terms of the Agreement!”
On Tuesday, National Economic Council Director Larry Kudlow helped play clean-up, saying that China has “picked up its game” on buying commodities and stopping intellectual property theft. “I think he misspoke,” Kudlow said of Navarro. “The trade deal is on. No question about it.”
Treasury Secretary Steven Mnuchin also said on Tuesday that the deal was alive, adding he was sure China could live up to its end of the bargain.
The potential for a new U.S.-China trade war has damaged markets, sometimes eclipsing the economic collapse and death toll from the pandemic. Earlier this year markets fell after Beijing announced a new national security rule in Hong Kong that threatened the city’s autonomy. Investors have since worried about increasingly tough talk from the White House over the Covid-19 pandemic.
“Trump is foremost focused on the economy,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “My thinking is that Trump is doing his best to hold the China deal together, because if it is fading why not put out another huge tariff?”
Hufbauer called it likely that both Kudlow and Mnuchin are the glue that keeps the deal in place. “They know that if you heighten the trade war with China, you will hurt the U.S. economy,” Hufbauer said. “They will string it out unless it is a visible failure.”
The likelihood of China meeting the deal’s Phase 1 terms — to purchase an additional $200 billion in U.S. agricultural products and other items — has grown cloudy. China has tight control over its agricultural sector, but it the economic slowdown has tightened demand for U.S. imports.
Others say the trade deal is unlikely to merely collapse, even if the terms are unreachable.
“The kerfuffle over Navarro’s comments show that although the administration is still committed to the Phase One deal for political purposes, its overall Chinese policy has moved in a hardline direction as a result of the pandemic,” Scott Kennedy, senior adviser at the Center for Strategic & International Studies, said in an email.
“No longer is there an effort to use pressure to push China to change in a way more amenable to the U.S. Instead, the dominant focus is on containing China, making it weaker and more isolated,” he wrote.
Meanwhile, Joe Biden has taken sharper aim at Trump over the China trade deal. In a new advertisement, the Biden campaign said the president “lost a trade war that he started” and “got played” by the communist regime.
“Trump needs to keep whipping China for the election and not let Biden get ahead of him on that point,” Hufbauer said.
Despite the tensions with China, markets have had some good economic indicators to help them along.
The purchasing manufacturers index for June released by IHS Markit showed improvement among manufacturers during the second quarter, rising from 39.8 to 49.6. The survey also showed further cuts to workforce numbers in June, but at a “modest rate,” and many manufacturers reported the return of furloughed staff.
“The second quarter started with an alarming rate of collapse but output and jobs are now falling at far more modest rates in both the manufacturing and service sectors,” said Chris Williamson, chief business economist at IHS Markit. “The coming months will therefore see the focus turn to just how much recovery momentum the economy can muster to recoup this lost output.”
The construction industry has shown promise, too.
An index released jointly by the U.S. Chamber of Commerce and USG Corp. found that confidence in new business and revenue expectations among contractors during the second quarter remains low. About 60% of builders still report a significant backlog of work, however, and 1 in 3 builders say they will hire more workers in the next six months.
“No industry has been immune to the devastating impact of Covid-19,” Neil Bradley, executive vice president at the Chamber of Commerce, said in a statement. “However, the commercial construction industry appears poised for a quick recovery and a return to growth.”
The Census Bureau also reported on Tuesday that sales of single-family houses rose 16.6% in May from April, which was also nearly 13% higher than sales in May 2019.