It is now clear that Trump’s policy is not about the trade deficit. Security risks can be applied to every aspect in a bilateral relationship, investment restrictions in particular.
That’s from Australia & New Zealand Banking Group’s Raymond Yeung, who spoke to Bloomberg on Monday for a story about Trump’s plans to restrict Chinese investment in U.S. industries citing national security.
I talked about this a bit on Sunday evening in the week ahead preview. It seems to me like FT had this first, but suffice to say that once Bloomberg reported it, market sentiment started to sour materially and that sour sentiment weighed heavily overnight.
Apparently, Mnuchin is going to begrudgingly accept this new plan and will announce on Friday a “a two-tracked CFIUS process to review investments, with one specifically for China.”
And so, Chinese stocks were crushed (again) as trade jitters negated any boost shares might have otherwise gotten from the RRR cut (of course that cut was so telegraphed that you might argue the gains would have been small). The Shanghai Composite closed at its lowest in two years and is basically in a bear market:
By the end of the session the ChiNext was down too and it’s only going to take another couple of down days to push this fucker to its lowest since 2014:
Not helping matters here is the yuan which fell to its weakest level of the year after the PBoC weakened the fix for a fourth day. The problem is two-fold: there’s the trade spat but there’s also the continual loosening of monetary policy. Both of those factors are undercutting the currency and the cruel irony is that part of the reason why it’s necessary for China to adopt looser monetary policy is that Trump’s trade war threatens to undermine the domestic economy which is already decelerating on the heels of the deleveraging push. Of course the more of a policy divergence we get between the U.S. and China, the more scope there is for capital flight and around we go.
Hong Kong shares didn’t fare any better, with the Hang Seng falling more than 1% to its lowest close since December 15:
Meanwhile, the rebound in Turkish assets that was initially predicated on Erdogan’s sweeping election victory was faded. Have a look at the lira:
Again, this is all about central bank credibility and, more broadly, about whether Erdogan goes right back to talking about rate cuts now that he’s effectively Sultan for life. My contention is that he will. There’s a sense in which Sunday’s outcome was the worst possible result from a market perspective, but traders are a myopic sort and they’ll often trade short-term stability for long-term viability even when “short-term” means 12 fucking hours. Remember this from last night:
LIRA EXTENDS GAINS AFTER ERDOGAN SAYS RESULTS SHOW HIM WINNING pic.twitter.com/RpOV4r1btB
— Walter White (@heisenbergrpt) June 24, 2018
It was the same thing in Turkish stocks which erased large gains of nearly 4% to trade flat as of 12:00pm inIstanbul. “Challenges still lie ahead, all well-flagged, so investors will focus on what steps the government will take to tackle these,” Raiffeissen Centrobank’s Ozgur Yasar Guyuldar said, adding that “investors will be keeping an eye on the names of the new cabinet members who will be in charge of the economy as well as near-term developments on fiscal policy.”
Finally, European shares are sharply lower on trade jitters and the autos are more “beleaguered” than Jeff Sessions after a Trump Twitter tongue-lashing, down nearly 2% to their lowest since early September. The index is down 13% in a month:
So no – no soup for you.