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London pre-open: Stocks seen muted after US, China sign 'phase one' deal

By Michele Maatouk

Date: Thursday 16 Jan 2020

London pre-open: Stocks seen muted after US, China sign 'phase one' deal

(Sharecast News) - London stocks were set for a muted open on Thursday after the US and China signed their 'phase one' trade deal.
The FTSE 100 was called to open four points lower at 7,638.

CMC Markets analyst Michael Hewson said: "After months of wrangling the US and China finally signed their phase one trade deal yesterday. The terms, which have brought a pause to standoff that has lasted nearly two years, contained a pledge by China to purchase $200bn of US goods and services over the next two years, as well as tighter rules on intellectual property.

"Amongst a number of downsides was the fact that the deal still means that tariffs still remain on $360bn of Chinese goods, and are likely to remain there for at least another 12 months, at the very least.

"This because of a pledge by President Trump that the existing tariffs would remain in place until the second phase of a deal had been agreed. Given that it has taken nearly two years to pick off the low hanging fruit of a phase one deal, it does stand to reason that phase two is likely to take much longer. It also probably suits President Trump's narrative to incorporate the prospect of a phase two deal into his re-election campaign.

"In any case the tail risk for markets in the short term isn't in the form of further de-escalation, but in the form of the deal falling down, and tariffs getting increased again."

On home turf, investors will be mulling over the latest survey from the Royal Institution of Chartered Surveyors, which showed that greater political clarity following December's general election helped boost sentiment across the UK's property market.

According to the RICS UK Residential Market Survey for December, sales expectations for the next 12 months rose to a net balance of +66%, compared to +35% in November.

The survey also reported +17% more respondents saw a rise rather than a fall in enquiries from new buyers, compared to -5% in November, while the number of agreed sales edged up to +9%, the first positive number since May.

Regarding house prices, the survey's headline net balance came in at -2%, compared to -11% previously, which RICS said signalled a "broadly flat national trend". Looking further ahead, however, and near-term price expectations were revised higher in all parts of the UK.

Simon Rubinsohn, RICS chief economist, said: "The signals from the latest survey provides further evidence that the housing market is seeing some benefit from the greater clarity provided by the decisive election outcome.

"Whether the improvement in sentiment can be sustained remains to be seen, given that there is so much work to be done over the course of this year in determining the nature of the eventual Brexit deal. However, the sales expectations indicators clearly point to the prospect of more upbeat trend in transactions emerging with potential purchases being more comfortable in following through on initial enquiries."

On the corporate front, like-for-like third quarter sales at pubs to hotels group Whitbread fell 1.3% as weak accommodation demand offset a strong good performance in food and beverages.

The Premier Inn owner said like-for-like sales at its hotels unit fell 2.1% during the quarter, while food and beverages rose 0.4%.UK total sales grew 0.3% in the third quarter as weak business and leisure confidence in the regions continued, partially offset by the strength of the central London market.

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