As trade talks with China advance, Trump has noticed the market gains that followed each sign of progress.
That’s from a Bloomberg piece that cites “people familiar with the matter” who say the president is in a rush to get a trade deal done with China because he believes finalizing an agreement might ignite a market rally.
To be clear, we’ve heard this story before, but it’s the gift that keeps on giving. Picture Trump, sitting in front of a TV, pointing to the ticker tape and shouting randomly at aides about how Larry Kudlow is engineering a bounce in real time with the same set of nebulous talking points.
The irony is that a deal is probably already in the price at this point. As we’ve discussed here before, Trump’s bullying of Jerome Powell was at least indirectly responsible for the Fed’s dovish pivot, which was in turn responsible for igniting 2019’s dramatic rebound off the December doldrums. The following passage is from a Saturday post:
Sure, the Powell Fed will couch everything in terms on apolitical policymaking guided solely by their mandate and the incoming data, but there is little question that Trump’s incessant badgering contributed to the FOMC’s epochal dovish pivot in January. Even if you don’t believe that Trump’s intention to fire Powell or his dinner dates with the Fed chair (and his deputy) directly influence policy, the president might well have indirectly influenced policy by drawing the public’s attention to balance sheet runoff, thereby heightening market concerns and exacerbating the Q4 selloff. That selloff tightened financial conditions, which in turn informed the Fed’s decision to take a pause.
Again, that dovish pivot helped catalyze the best start to a year for global equities since 1987. In stark contrast to 2018, nearly every asset class has posted positive returns since the lows on December 24, when Trump tanked markets on Christmas Eve by criticizing Powell’s golf game.
The rally off the late December lows was likely helped along by ostensible trade progress, so now, the question is whether there’s any gas left in the tank. For some analysts, the answer is no. Barclays, for instance, sees virtually no upside from current levels on the S&P and Goldman’s year-end target doesn’t entail much in the way of a rally either.
So, having pressured the Fed into sparking a risk asset rally, it’s entirely possible that there’s simply not much further equities can run in the absence of a convincing and sustainable turnaround in the prospects for global growth. That will take time.
Additionally, it’s possible that Trump’s hankerin’ for a stock surge will end up manifesting itself in better terms for China, something trade hawks like Bob Lighthizer would be aghast to concede. “His enthusiasm for a pact could shape crucial decisions such as balancing Chinese pressure to lift tariffs immediately against trade hawks’ arguments to initially maintain duties as leverage to assure good behavior by Beijing”, Bloomberg goes on to write, adding that Trump’s eagerness “could provide an opening for China to seal a deal without giving major ground.”
Steve Mnuchin and Larry Kudlow were keen on striking an upbeat tone last week, just a day after Lighthizer told the House Ways and Means committee that key sticking points remained and that enforcement would be very challenging.
Another indication that the announcement of a final deal might not spark the kind of euphoric melt-up that Trump wants is this week’s market action. Weekend reports suggested the US was indeed closing in on a final agreement with Beijing and yet this is shaping up to be the worst week for US stocks since mid-December.
Additionally – and we mentioned this on Monday – Trump likely feels more inclined to hurry a deal with Xi along after the failed summit with Kim in Hanoi. One can’t help but wonder whether China might have realized that going in and instructed Kim to strike a somewhat defiant tone in order to make sure Trump didn’t seize any extra momentum during the final stretch of Sino-US trade talks.
In any event, the bottom line is that Trump is in a hurry to get something done and that means “the art of the deal” might end up looking more like “the art of the ‘I don’t really care, let’s just sign this thing and watch the Dow’“.
One can only imagine the president’s frustration if a signing ceremony in Florida doesn’t end up giving stocks the shot in the arm he’s pretty clearly hoping for. That’s when he’ll once again take to Twitter to blame “presidential harassment” and “the gentleman at the Fed” which, ironically, will only serve to dent market sentiment.