Axios Markets

There was limited fanfare from the stock market after President Trump and Chinese Vice Premier Liu He signed the phase one trade deal yesterday.

What happened: The 94-page document will roll back some U.S. tariffs on Chinese goods and see China increase purchases of U.S. goods and services by $200 billion over two years, but it leaves more questions than answers, experts say.

• Still, it was enough to satisfy the market, which had been pricing in the deal for months.

Between the lines: The agreement does not spell out what goods China will buy or how it will reach the targets of $200 billion of increased spending on agriculture, energy, manufacturing and services from 2017's spending levels.

• That's just one of the "big, giant gaping holes" in the agreement, says Chad P. Brown, a senior fellow at the Peterson Institute for International Economics.

The intrigue: The agreement does not touch on China's industrial subsidies, changes to its economic structure, or its tariffs on U.S. imports, leaving those in place along with about $360 billion of U.S. tariffs on Chinese goods.

That's a major issue for Montana wheat farmer Michelle Erickson-Jones.

• "This deal ... makes American farmers increasingly reliant on Chinese state-controlled purchases," she said in a statement distributed by the trade group Farmers for Free Trade.
• "The promises of lofty purchases are encouraging but farmers like me will believe it when we see it."

Yes, but: It was enough for Wall Street, which largely saw the signing as a relief. The Dow closed above 29,000 for the first time and the S&P 500 edged higher on the day.

• “Whether somebody looks at this as big progress or little progress, it is something tangible and so the arrow is pointing in a direction that the market is comfortable with,” Chuck Carlson, CEO of Horizon Investment Services, told Reuters.

What's next: There's already talk of a "phase two" deal that could address some of the larger issues. However, the deal is likely to happen only after the 2020 presidential election.

The big picture: "This is an interim step to a very uncertain relationship between the U.S. and China," Brown told Axios during a call with reporters.

• "Trade policy with China over past two years saw a substantial shift and it’s never going to go back, even with this deal."

Profit surged 46% to $2.24 billion at Morgan Stanley, which beat Wall Street estimates for earnings and revenue. (CNBC)

JD.com, Yum China, Baidu and other Chinese companies are considering secondary listings in Hong Kong that could collectively raise as much as $15 billion. (Nikkei)

Goldman Sachs, one of the company's early investors, sold its entire stake in Uber in Q4, likely resulting in a large gain and helping Goldman beat analysts’ expectations for revenue in the period. (CNBC)

TikTok surpassed Facebook to become world’s second most downloaded app. (SCMP)

The bond-buying program the Fed began in September that has added more than $400 billion to its balance sheet may not be that different from its previous quantitative easing program, Dallas Fed president Robert Kaplan said Wednesday.

• In fact, he says it's likely helping lift the stock market and other asset prices.

What he said: “My own view is it’s having some effect on risk assets,” Kaplan said in an interview with Bloomberg.

• “It’s a derivative of QE when we buy bills and we inject more liquidity; it affects risk assets. This is why I say growth in the balance sheet is not free. There is a cost to it.”

Why it matters: Fed chair Jerome Powell and other members of the U.S. central bank have insisted that the bond buying is merely an effort to stabilize the repo market and keep its target rate in line.

• However, analysts have pointed out that the program is eerily similar to what the Fed did following the financial crisis to help stimulate the U.S. economy's recovery.
• It's somewhat quizzical that the central bank would be deploying it at a time when it asserts the economy is strong and the outlook is bright.

The intrigue: It's not just the bond buying, Kaplan said.

• The combination of low interest rates, the perception that there is a high bar for the Fed to raise rates, and the expansion of its balance sheet "are contributing to elevated risk-asset valuations. And I think we ought to be sensitive to that,” he said.

More money flowed into bond funds last week than at any time in at least seven years, data from the Investment Company Institute released Wednesday showed.

Why it matters: The S&P 500 gained 30% last year and the stock market has delivered strong returns so far in 2020, but investors continue to buy safe-haven bonds and sell stocks.

What's happening: ICI representatives say the move likely represents a rebalancing effort by investors after a strong year in equities, but it follows a year in which data showed investors did exactly the same thing.

• In 2019, ICI reported the largest outflows from equity funds in the history of its data (dating back to 2010), while bond funds saw historic inflows, including an all-time high in municipal bond buying.
• Lipper, which has data going back to 1992 and tracks more than $40 trillion of assets, also reported record outflows from stocks last year.
• Money market funds, which are essentially savings accounts, saw holdings swell to levels last seen in 2009, following the global financial crisis.

What it means: Many have worried the market may be getting overconfident and complacent in the face of good news like the signing of the U.S.-China phase one trade deal and an expected resolution for Brexit.

• However, the numbers show there remains a strong sense of caution running through the market.

Venture capital funding fell significantly in the U.S. and China last year, but boomed in the U.K., rising to a record high $13.2 billion, according to a report prepared for the British government by industry group Tech Nation and research firm Dealroom.

• The U.K. saw a significant increase in the number of deals and amount of money pledged by venture capital firms, far outpacing other European economies, with half of the total funding coming from firms and investors based in the U.S. and Asia.

Details: U.S. investors including Benchmark, Sequoia and Insight Partners have all invested in U.K. companies in 2019, the report said.

• London was the fourth most invested location in the world, trailing the Bay area, Beijing and New York.

But, but, but: While the U.K. saw a significant increase in VC activity and leads European countries in funding, it still badly trails both the U.S. and China in terms of number of deals and total invested.

The Fed released its latest beige book on Wednesday and the biggest takeaway was that despite the excitement for the phase one trade deal, "tariffs and trade uncertainty continued to weigh on some businesses."

What it means: The beige book gathers anecdotal responses from businesses around the country to get an idea of how the economy is doing.

• "In short, any positive burst in sentiment resulting from the accord signed [yesterday] has either not materialized, or is still to come," BMO Capital Markets rates strategist Jon Hill wrote in a note to clients.

What they're saying: “Several [businesses] increased prices of final goods but struggled with low profit margins due to tariffs on raw materials,” the report said.

• Manufacturing activity was "essentially flat," and the report contained a number of what Hill described as "ominous details."
• Hiring is slowing significantly, and there are some reports of declining prices.
• Some manufacturing companies even reported job cuts.

Yes, but: The expectation of the trade deal did spur some hope. The Chicago Fed district said it had “boosted farmers’ outlooks” while the Dallas Fed said “outlooks generally improved, with reduced trade uncertainty boosting optimism.”

A new survey from Bankrate.com finds that white banking customers are paying significantly less in fees than people of color and that older customers pay much less than their younger counterparts.

What's happening: The average person in the U.S. with a checking account pays about $8 per month on fees like routine service charges, ATM fees and overdrafts, but black and Hispanic customers reported spending twice that much.

By the numbers: White checking account holders said they paid an average of $5 per month in fees, while Hispanic account holders paid an average of $16 a month, and black account holders paid $12.

• The typical millennial (ages 24–39) with a checking account pays $13 per month in fees compared to $9 for Gen X (ages 40–55) and $3 for baby boomers (ages 56–74).