Today, we’re seeing big gains in U.S. markets based on easing of trade conflict with China.
Why the significant jumps in U.S. stock futures today? Part of the enthusiasm that’s driving renewed market activity: the technology sector.
In past weeks, as tariff activity seem to be ratcheting up, chipmakers like Broadcom came out with poor earnings reports and projected sales reports partially based on the fact that they source products and materials from Chinese companies. As American businesses were under a mandate not to buy from China, it was hurting their supply chains.
Some experts pointed out that what hurt Broadcom might benefit Intel — but others realized that all of the sector is fairly interconnected, and overall news wasn’t likely to be good absent some making up between the two superpowers at the G20.
However, we had some interesting news a few days ago, as reported in the Wall Street Journal: Export attorneys for the chip makers began looking at regulations with a magnifying glass, and found that they could actually still buy from China by labeling transactions in a particular way.
Seeking Alpha leaked this tidbit in following a 10% pre-market jump by chip company Micron in pre-market June 26, directly linked to resuming sales with Chinese firm Huawei. Citing remarks by Cross Research analyst Steven Fox, the report suggested that “even when businesses have headquarters in the U.S., they may be able, through ownership of overseas subsidiaries and operations, to classify their technology as foreign.”
That realization led to rosier reports from chip makers like Micron, and more confidence at Intel and other core developers.
With today’s news, it becomes somewhat of a moot point, but it’s interesting to note that the market was already correcting for an end-run around draconian tariff activity and the protectionism of the administration.
A deeper look into QCOM, INTC and others should give some insight into how the industry is responding in the wake of the G20: Though the two negotiating parties have further to go on nailing down details, even an abstract easing of trade tensions has had a big effect.
