[Good Morning Stock Market] "Need to Confirm Improvement in Economic Sentiment After US-China Phase One Trade Agreement"

U.S. President Donald Trump (right) and Chinese Vice Premier Liu He shake hands after signing the U.S.-China Phase One trade agreement at the White House in Washington, D.C., on the 15th (local time). (Photo by AFP)

[Asia Economy Reporter Kum Boryeong] As the United States and China officially signed the Phase 1 trade agreement on the 15th (local time), opinions have emerged that it is necessary to verify whether the perceived economic conditions will improve going forward. However, the analysis suggests that it does not appear to be significantly positive for the Chinese economy, which still bears a heavy tariff burden.

◆ Yumi Kim, Kiwoom Securities Researcher = Next week, attention is expected to focus on how much the preference for risk assets following the US-China Phase 1 trade agreement will be reflected in the perceived economic conditions of major countries. Additionally, whether South Korea's exports improve by the 20th and the European Central Bank's monetary policy meeting are events to watch.

First, the January Manufacturing PMI indices for the US and the Eurozone are scheduled to be released later in the week. Looking at the current consensus, a slight improvement compared to December last year is expected. The easing of risk aversion in financial markets and heightened expectations for economic recovery following the US-China Phase 1 trade agreement are believed to have positively influenced the improvement in perceived economic conditions in major countries. However, in the case of the US Manufacturing PMI, the temporary production halt issue of Boeing 737 aircraft may have posed a burden, so the improvement might be minimal or stagnant compared to the Eurozone and Germany.

If the improvement in perceived economic conditions in the Eurozone appears stronger than in the US, the euro could strengthen against the dollar due to expectations of Eurozone economic recovery. This could act as a factor weakening the dollar, which is expected to be favorable for capital inflows from foreigners into emerging markets and South Korea.

In South Korea, export performance for the first 20 days of January is scheduled to be announced. Considering recent leading indicators related to exports to China showing improvement, the expansion of China's import growth, and the favorable global manufacturing sentiment, the export performance for the 20 days is expected to turn slightly positive. The fact that exports for the first 10 days of January increased by 5.3% compared to the same period last year is also positive. Especially since last January's export performance had a large negative margin, even accounting for the base effect, the overall exports for January are expected to have continued improving following December of last year.

◆ Soeun Ahn, IBK Investment & Securities Researcher = The Phase 1 US-China trade agreement has reduced uncertainty. However, this outcome does not seem very positive for the Chinese economy, which aims to prevent a hard landing through the trade agreement. The tariff burden remains significant, and there is also the pressure to increase imports of US products regardless of China's domestic demand conditions. The average US tariff rate on China is expected to decrease from the current 21% to 19.3% (estimated by PIIE). The problem is that the tariff rate is unlikely to decrease further in the near term. The US maintains its stance to use additional tariff reductions as leverage in Phase 2 trade negotiations, and it is difficult to reach an agreement soon on Phase 2 talks addressing China's subsidies and state-owned enterprise reforms.

Ultimately, since the tariff reduction is minimal, the positive impact on China's manufacturing and export economy is expected to be limited. Recently, China's manufacturing PMI rebounded significantly due to domestic stimulus measures and easing trade tensions, but considering the Phase 1 trade agreement results, China's manufacturing PMI may decline again. In this case, downside risks in manufacturing could offset government stimulus efforts and pose burdens on Chinese employment and domestic economic conditions.