Well, he blinked – sort of.
Amid a worsening selloff in China and signs that the turmoil in Shanghai, emerging markets and European auto shares was set to spillover into U.S. equities, the Trump administration has decided against using the harshest measures available to restrict Chinese investment in U.S. industries.
According to U.S. officials who spoke to reporters, the Trump administration will use CFIUS to safeguard U.S. technology.
That was tipped on Tuesday and comes after a trial balloon sent up on Sunday and Monday refused to float, leading to declines in U.S. stocks and rising volatility to start the week.
“CFIUS is able to respond appropriately to different threats from different countries,” the officials said, adding that Trump is happy with the direction CFIUS is headed and supports enhancements.
They added that the action is geared towards keeping the investment environment in the U.S. open and said the President is tasking the Commerce Department and other agencies with enhancing the export control regime.
This looks like a win for Steve Mnuchin and a setback for Peter Navarro, with the latter’s attempts to jawbone markets higher on Monday afternoon having met with only lukewarm success.
You’ll recall that on Monday morning, Mnuchin attempted to walk back Sunday’s reporting from FT , WSJ and Bloomberg with an ill-fated tweet that sounded like it was written by Trump, most likely because it was. That failed to assuage concerns and so Navarro was trotted out just before the closing bell on Wall Street to try and do some damage control.
Of course no one ever accused Navarro of being a damage control expert and although he did manage to engineer a half-hearted bounce, stocks still closed Monday deeply in the red and international markets have been under pressure ever since.
Mnuchin has gone largely silent since losing an internal White House struggle to keep control of trade policy last month. Two Fridays ago, Charlie Gasparino tweeted that according to his sources, Mnuchin has warned Trump about the prospect of a market crash in the event the administration keeps pushing the envelope on the trade issue. Fast forward a few days, and reports suggested Mnuchin was deliberately keeping quiet in what amounts to an effort to express his displeasure with how things are going without actually expressing anything publicly for fear of pissing off Trump or otherwise making his angst known to the public.
Sunday’s news that Trump would resort to more draconian measures to curtail investment in U.S. industries looked like it might mark the beginning of the end for Mnuchin. As Bloomberg writes, “the administration had considered employing a little-used national emergency law called the International Emergency Economic Powers Act of 1977 to curb prospective investments.”
The CFIUS approach is more conventional and less adversarial and thus more market friendly. Bloomberg also reminds you that this will mean working through Congress on the modernization of CFIUS, which is less dictatorial than simply using the powers of the executive branch.
S&P futs spiked on the news:
As did USDJPY:
The next play is China’s now, as crude priced rise, the yuan tumbles, and Trump appears conciliatory.
Got US treasuries?
Got bitcoin? lol
It’s hard to ignore Richard Koo at this point, where he aegues for more fiscal spending to get those needed dollars deployed into the economy (e.g., the “wall”, trade “war”, etc.)…whatever it takes to get majority consensus to spend and accept the increased debt level.