On Thursday, it was “bandit logic“. On Friday, it’s “little tricks”.
That’s how Chinese state media is describing Washington’s approach to stalled trade talks and to bilateral relations more generally on the heels of the Trump administration’s decision to blackball Huawei.
The move against China’s “national champion” (as Cowen called Huawei in a note on Thursday) is easily the most serious escalation yet. In fact, Trump’s Huawei gamble qualifies as one of the more risky foreign policy bets of his presidency.
“We can’t see the US has any substantial sincerity in pushing forward the talks. Rather, it is expanding extreme pressure”, a commentary from Taoran (a social media mouthpiece for Beijing) posted on Thursday evening reads. “If the U.S. ignores the will of the Chinese people, then it probably won’t get an effective response from the Chinese side.”
This is yet another manifestation of the Party marshaling the full force of the state propaganda apparatus. Although Taoran is something of an oddity, the well known state outlets have pushed out a deluge of commentary this week ranging in tone from incredulous to aggressively nationalistic.
“If anyone thinks the Chinese side is just bluffing, that will be the most significant misjudgment [since the Korean War],” the Taoran note went on to warn.
And that was hardly the end of it. Take a look at the People’s Daily:
Those are all from Friday. Beat that, Fox News.
Echoing the Taoran commentary, spokesman Gao Feng reiterated that China’s three major concerns must to be addressed prior to any deal being reached.
With Beijing digging in, Chinese stocks fell. The CSI 300 sank more than 2.5% on the day for its worst session since the Monday following Trump’s initial tweet tipping the imposition of higher tariffs. The Shanghai Composite has now fallen for four weeks in a row.
Meanwhile, the onshore yuan crossed 6.90 on Friday. This was the fifth consecutive week of losses for the yuan, the worst stretch since August, when the PBoC stepped in with a series of measures to halt the currency’s slide.
“The yuan is more likely to break 7 this year compared with 2018 due to the escalation of trade tensions, but still the chances of that happening are small”, Nomura said Friday, adding that “the PBOC will intervene before the currency hits that level [as] a breaching… could lead to a quick build-up of depreciation pressures [and] excessive weakness could hurt the economy and trigger panic in the financial markets.”
Right. But, it would also give China an excuse to start dumping Treasurys – Beijing could claim that “irrational” market behavior made it necessary to defend the currency. In any case, the RMB has also fallen against other peers – Bloomberg’s CFETS tracker is riding a 13-session losing streak.
The SHCOMP has underperformed the S&P for four weeks running – that’s tied for the longest streak of weekly underperformance since the trade war began in earnest last summer.
In the latest edition of BofAML’s FX and Rates sentiment survey, the bank noted that while respondents said Trump’s latest trade bombast has reduced hopes for a broad deal, clients “remain remarkably sanguine about a further escalation in trade wars.”
The survey period ended on May 8. One wonders how those respondents are feeling now.