“China is DREAMING that Sleepy Joe Biden, or any of the others, gets elected in 2020”, Donald Trump said, as trading got underway in Asia. “They LOVE ripping off America!”
Suffice to say that kind of rhetoric isn’t conducive to defusing a tense situation.
Anyone hoping Friday’s rebound in risk assets had legs or that Trump would be inclined to tone down the bombast after a tumultuous week across global markets, was disappointed on Sunday evening.
To be clear, things had already deteriorated further by the time Trump opened his Twitter app to vent before bed. Chinese state media spent Saturday blaming the US for undermining negotiations while Trump declared he had surely bested Beijing in the “art of the deal” and that China is now trying to hold out for 2020.
On Sunday afternoon, the People’s Daily accused the Trump administration of “obstructing” bilateral talks. US equity futures fell more than 1% out of the gate before trimming losses. The risk-off mood was apparent across FX as well.
Despite Friday’s late rally, US stocks are coming off the worst week of the year. Notably, the SOX dove 6% last week while the Nasdaq 100 lost more than 3%. Considering that, the early action marked a rather inauspicious start.
Trump made things worse, as he’s wont to do.
“We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate”, he tweeted, before perpetuating a comically ridiculous narrative he began pushing on Friday regarding the tariffs, farm products and humanitarian aid for starving nations. Here’s the president to explain (again):
We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries…….We will then spend (match or better) the money that China may no longer be spending with our Great Patriot Farmers (Agriculture), which is a small percentage of total Tariffs received, and distribute the food to starving people in nations around the world! GREAT! #MAGA
“Make geniuses very stable again.”
The yen rallied early Monday, rising against all of its G10 peers in early trading, a reflection of the palpable sense of angst.
The yuan fell and Goldman revised their 3-month outlook for the currency. “Considering the short-term uncertainty around trade talks, we have revised our 3m forecast for USD/CNY to 6.95 (from 6.65 previously), but have left our 6m and 12m forecasts unchanged at 6.65 and 6.60 respectively, as we still think an agreement is fairly likely to be reached in coming months”, the bank wrote, in a note dated Sunday.
Trump’s contention that the US is “right where we want to be” vis-Ã -vis China is more than a little bizarre. Traders and market participants had for months assumed that where Trump “wanted to be” was shaking hands with Xi at a signing ceremony in Mar-a-Lago.
Now, we find out that where Trump really “wants to be” is right back in a scenario defined by threats, escalations and absurd tweets complete with derisive references to China as a scheming nation of trade bandits and silly nicknames for his 2020 Democratic rivals.
While Monday needn’t be a disaster for markets, the tone struck over the weekend by the Chinese was one of aggressive defiance, while Trump resorted to posturing and chest-beating in the course of effusing faux machismo. None of that is what markets wanted to hear after last week.
Strap in, it could be a bumpy ride.
It’s fine. They’ll get the Acting Assistant Deputy Undersecretary of Commerce to go on CNBC and Fox Business and say that talks are going fine and the markets will be up for the day. I think the technical term for it is “stick save.”