“He’s a good man. But they broke the deal”, Donald Trump said Wednesday evening at a cartoonish rally in Panama City Beach, Florida.
The “he” refers to Chinese Vice Premier Liu He. “They” of course refers to China.
Markets keyed on that soundbite Thursday, although it’s not clear why. Trump will be Trump, and when he’s in stadium rally mode, he’ll say anything to get a rise out of the raucous crowd. Besides, his base loves a fight. Recall this assessment from Wednesday:
But thanks to the fact that Trump’s appeal with his base rests in part on the perception that he’s perpetually “fighting the good fight” (even when that entails harming the very people who came out in droves to vote for him), it’s never entirely clear whether he’s chasing the elusive target – at best pursuing a “win” with China so he can turn his figurative guns on Europe, and at worst negotiating in bad faith, comforted in the notion that his supporters revel in the “us versus them” narrative.
Beijing says Trump is pushing a false narrative. “There have been various commitments made for us”, the Commerce Ministry said Thursday, adding that “China is credible and honors its word and that has never changed.” Meanwhile, the ministry is set to outline the details of retaliatory measures which will presumably go into effect shortly after Trump more than doubles the tariff rate on $200 billion in Chinese goods Friday.
The Chinese delegation flew wearily back to Washington today for another round of talks. During what’s being described as a tense exchange on Tuesday, Steve Mnuchin was reportedly assailed for suggesting that the US trust Liu to help push the deal over the finish line.
Whatever the case, markets weren’t amused. Reports that North Korea test-fired two short-range missiles didn’t help and neither did April credit data from China. Total social financing was 1.36 trillion yuan last month. That missed consensus (1.65 trillion) and the low end of the range (range 1.43t yuan to 2.5t yuan, 27 economists).
New yuan loans missed as well, printing 1.02 trillion versus estimates of 1.2 trillion yuan. The figures mark a deceleration from March, and lend some credence to the notion that the market shouldn’t bet on blockbuster credit growth out of China.
Mainland shares fell again on Thursday amid souring sentiment. The CSI 300 is on track for its worst week since Vol-pocalypse. Foreigners are getting out of dodge, dumping an average of nearly $650 million a day in A-shares via the Hong Kong links. That would make this the biggest week of foreign outflows on record.
The offshore yuan now sits at its lowest since January, having fallen more than 1% during the last three days. The Shanghai Composite is down nearly 14% from this year’s euphoric highs.
This is also the worst week for H-shares since last year’s VIX ETN extinction event. And volatility in Hong Kong has spiked the most since that same infamous week in February 2018.
All in all, Trump has “succeeded” in throwing things for a loop this week and although US equities have had a rough go of it too, the pain on the Mainland in China has been acute. Hong Kong is feeling the heat as well and, generally speaking, we look to be right on the doorstep of a steeper drawdown assuming things escalate into the weekend.
I suppose we can take solace in the notion that this is all part of the plan, according to Trump. There’s an “art” to deals – even broken ones.