Reciprocity: Full Week Ahead Preview

Trade and immigration are going to be in focus all week long, so steel yourself for more tension.

Trump’s rhetoric over the weekend suggested he’s in no mood to strike a conciliatory tone on anything. On Sunday, in a laughably egregious broadside, he suggested that the U.S. should “immediately” send immigrants “back where they came” with “no Judges or Court Cases” (and as usual, the random capitalization is his, not mine).

Immigration is also on the frontburner across the pond, where officials from 17 countries met at an ad hoc confab on Sunday to try and hammer out some kind of agreement – anything really – before Merkel becomes a political casualty of her own benevolence on the migrant issue. That hastily convened pow wow comes ahead of the EU summit on Thursday and Friday.

The agenda is “packed with difficult issues including migration, a European fiscal budget, completing the Banking Union, revamped European Stability Mechanism, Italian fiscal risks, and Brexit,” Barclays wrote over the weekend, adding that “some progress can be expected on all fronts except Brexit but risks around fiscal sharing and migration are large.”

“The EU summit on 28-29 June is gearing up to be a contentious one set against a backdrop of increased geopolitical tensions and pressure on leaders of the EU-28 to reach agreements on a host of issues, including migration and asylum, security and defence (ahead of July’s NATO summit), Brexit, the banking union and the role of the European Stability Mechanism (ESM) — not to mention presenting a unified response to the threat of escalating trade wars,” BNP writes, in their own preview, before flatly noting that “the bottom line is that the summit might take some small steps forwards, but as ever, the devil will be in the detail (or any lack thereof).”

On trade, Trump was “at it again” (to employ his own vernacular), tweeting the following just two days after exacerbating the Daimler guidance cut by threatening European auto imports:

Speaking of “reciprocity”, they’ll be some from China starting on July 6 if Trump allows the tariffs to kick in.

Trump is walking a fine line here when it comes to destabilizing markets. U.S. shares are holding up ok, all things considered, but China was effectively forced into another RRR cut over the weekend as the SHCOMP teeters on the edge of a bear market and the ChiNext sits near its lowest levels since January 2015.


The SXAP is coming off its worst week since January 2016 and has fallen everyday since Draghi:


On Sunday evening, FT was out reporting that Trump is now set to take things up another notch still on Beijing. To wit:

The Trump administration has decided to restrict Chinese investment in US companies and start-ups in sectors from aerospace to robotics as it prepares to deploy its latest weapon in the escalating trade war with Beijing.

The move could have even greater long-term consequences for the economic relationship between the US and China than the escalating tit-for-tat tariff war, according to experts, and mark one of the biggest changes to the US’s open investment regime in decades.

It is set to come in a series of restrictions on inbound Chinese investment that President Donald Trump has ordered the US Treasury to draft and release this week. They are meant to accompany already-announced tariffs on $50bn in Chinese goods aimed at forcing change in Beijing’s intellectual property practices.

For the umpteenth time, let me remind you that Trump is playing with fire here. Targeting Xi’s “Made in China 2025” plan (which is what that looks like) is risky fucking business and Beijing has repeatedly suggested that’s a bridge too far.

It’s also worth noting that the “America first” narrative is manifesting itself in Russell outperformance and it seems to me that the following chart is a canary, although as soon as I say that, the Dow will invariably outperform. Anyway, it is what it is:


Meanwhile, the other big news over the weekend was obviously the election in Turkey, which Erdogan “won” (and the scare quotes are there for a reason).

People never learn, which is why the lira promptly surged on the results, despite the fact that Erdogan (who just a little over a month ago, plainly stated that after the election he would be taking a more active role in monetary policy) has now consolidated virtually all power in his office.


Remember how the lira rallied when he officially brought the elections forward by 18 months? Yeah, well don’t forget how that turned out – the currency went on to plunge and the slide was only arrested after a series of desperate measures from CBT which is attempting to make the market believe it still retains some semblance of independence. We’ll see how this pans out, but count me skeptical that Erdogan won’t go back to talking about rate cuts sooner or later.

Traders will also attempt to make some sense of the OPEC deal and what it means going forward, which will be an exercise in futility because the deal itself was rather ambiguous.

Argentina’s reconstituted central bank will meet on Tuesday and while some folks see another rate hike, Infobae was out on Sunday reporting that Caputo doesn’t necessarily agree with the policy of ever higher rates but likely won’t move to change things up too quickly. According to a central bank source, peso weakness is now seen as “under control”, Infobae says. Famous last words? Maybe, but the MSCI decision certainly helps and they’ve got the IMF.

In the U.S., we’ll get durable goods, the third read on Q1 GDP, PCE and consumer confidence. Taken together, I guess it’s possible that the U.S.-centric growth narrative (and thereby the policy divergence narrative) gets perpetuated even further, especially if the incoming data out of Europe disappoints just as the EU summit goes off the rails (I mean, there’s nothing that says it has to go off the rails, but see above for the reasons it might).

Also, keep an eye on IG spreads in the U.S. – they’re at 16-month highs:


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One thought on “Reciprocity: Full Week Ahead Preview

  1. I have this feeling that the orange 5-ball is entering the final stages of a manic melt down that will not end well. He will not back down on trade as he temporarily has on the crying kid thing (likely because of the women in his life) and will be full metal jacket ahead. And by no means am I making the migrant situation a small thing. I only hope his head-long plunge into the twilight zone comes around near the end of September. Even though the US holds better cards than China, he’s not a poker player by any stretch.

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