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The Week Ahead: US, China Strike ‘Phase One’ Deal, and Brexit Progress

Optimism abounded on Friday, both in the U.S. and across the pond in the U.K., following word of a partial trade deal between the U.S. and China and on hopes that a resolution could be close that would eliminate a no-deal Brexit.

Trade Talks: Early indications on Friday–from a series of tweets fired off by President Trump–that a partial trade deal was in the works came to fruition in the afternoon after word surfaced that China and the U.S. had reached an interim “phase one” deal. The deal suspends a tariff increase that was set to go into effect on Oct. 15. Without the deal, $250 billion of Chinese imports would have seen a tariff hike from 25 percent to 30 percent.

There is also talk that the deal could include a suspension of the tariff set to be implemented on Dec. 15. While the interim deal has been reached, it is still subject to Trump’s approval. Once approved, the deal is believed to pave the way for ongoing talks to finalize details regarding a key issue between the two countries over the protections of U.S. intellectual property assets.

Trump tweeted Friday morning that if a deal is reached, it would not require a “long and politically complex Congressional Approval Process. When the deal is fully negotiated, I sign it myself on behalf of our country. Fast and Clean!”

Brexit: Across the pond, word surfaced that there was a chance the U.K. could exit from the European Union with a deal in hand.
EU spokeswoman Mina Andreeva told media outlets that talks on Friday morning in Brussels between U.K. Brexit secretary Stephen Barclay and the E.U.’s chief negotiator on Brexit Michel Barnier were “constructive.” One stumbling block has been whether there will be a customs border on the island of Ireland. Northern Island is part of the U.K., while the Republic of Ireland is a separate country.
As part of the EU, trading between the two doesn’t require separate customs inspections as both are part of a single market and customs union. That would change with Brexit, although a recent meeting between U.K. prime minister Boris Johnson and Irish leaders now indicates that there could be a breakthrough where a deal is possible that would leave the region without a customs border.
The U.K. is set to exit the EU on Oct. 31.

U.S. Economic Outlook: The Conference Board on Thursday predicted that the U.S. is expected to see GDP growth of 2.2 percent in 2020. And a report on Friday from Morgan Stanley economist Ellen Zentner said that U.S. recession risks have moved down sharply due to recent gains in cyclical sectors of the economy that have received a boost from Fed rate cuts and further strengthening of the labor market.

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There’s been some concerns in recent weeks over where the economy is headed due to political issues as the 2020 presidential election looms on the horizon, as well as the impact from recent tariff hikes. Wells Fargo Securities’ senior economist Mark Vitner noted that while the NFIB Small Business Optimism Index fell modestly in September to a still historically high level at 101.8, rising uncertainty has held back hiring and investment activity.

The NFIB said “mumblings” about a coming recession mean small business owners are feeling less confident, while tariffs have had a tangible impact on small firms as 30 percent reported a negative impact in September. And the Fed’s decision to cut interest rates actually raised uncertainty as owners “have yet to see credit conditions ease noticeably.”

The NFIB small business Uncertainty Index rose six points over the past three months. In the latest survey, those firms that said this is a good time to expand fell four points to 22 percent, while those expecting improved business conditions fell three points to 9 percent.

A report from the Secured Finance Network on Thursday for the second quarter suggested continued expansion of asset-based lending. This likely indicates a greater willingness of corporate bank customers to use asset-based lending products to finance current activities or prepare for uncertain economic times, noted Richard D. Gumbrecht, the Secured Finance Network’s CEO.

However, the report also found in the quarter that more banks said they have experienced greater levels–on a quarterly sequential basis–of both non-accruals, loans where interest is overdue and collection on principal is uncertain, and write-offs of non-performing loans. The non-accrual rate in the second quarter rose to 35.3 percent versus 17.6 percent in the prior first quarter, while the write-offs  increased to 23.5 percent from 17.6 percent for the same period.

Barneys New York: The bankrupt retailer has until Tuesday to finalize a deal with a stalking-horse bidder. Court papers indicate that there are other bidders in the mix in addition to trade show operator and Kith investor Sam Ben-Avraham, who’s been tipped by some as the frontrunner. An auction is set for Oct. 24, provided a deal can be inked before then.