hong kong politics stocks

Trump To Risk Standoff With Xi, Will Sign Hong Kong Bill: Reports

"The ratings will be tremendous".

As expected, legislation backing the the pro-democracy demonstrators in Hong Kong breezed through the House 417-1 on Wednesday evening in the US after passing the Senate on Tuesday.

Bipartisanship is something rarely observed in the wild these days, but Democrats and Republicans in both chambers have rallied around the Hong Kong protesters, who have variously pleaded with the US to come to their aid amid the escalating violence that’s plunged the city into chaos and waylaid the local economy. (GDP contracted 3.2% in the third quarter, and the government expects to see the first annual recession since the crisis in 2019.)

The US Senate’s swift action this week came on the heels of some of the worst clashes between police and protesters since the demonstrations began in June. Carrie Lam long ago lost control of the situation, but resigning isn’t an option, even if Beijing may ultimately replace her. The US House cleared a broadly similar measure last month, so passage of the Senate version on Wednesday was a foregone conclusion.

Read more: Senate Passes Hong Kong Bill, Risking Backlash From China Amid Tense Trade Talks

What wasn’t clear, though, was whether the bill would get the support of Donald Trump, who has yet to offer a full-throated defense of the protesters. But, one person familiar with the situation told Bloomberg the president intends to sign the bill, averting a possible clash with Congress at a delicate juncture for his presidency.

As risky a gamble as irritating the Senate on the eve of impeachment would most assuredly be, chancing a falling out with Xi Jinping just as Bob Lighthizer and Steve Mnuchin are struggling to get the “Phase One” trade deal across the finish line with Liu He is perhaps just as risky. If the deal falls apart at the last minute, it could undercut buoyant markets.

With the memory of last year’s December selloff (the worst since the Great Depression) still fresh in the minds of investors, a “no deal” scenario could spell disaster.

Trump has promised to go ahead with the planned December 15 tariff escalation if there’s no interim deal. On Tuesday, he suggested he’d raise existing tariffs too.

It goes without saying that driving up consumer prices two weeks before Christmas (the next tranche of targeted Chinese goods is heavily weighted towards consumer items), getting blamed for a stock selloff and then getting impeached, all within the same three-week window, would not make for the best optics headed into an election year. Here’s a bit of color from Bespoke on Trump’s stock market:

The S&P gained 19.4% in year one of the current cycle versus an average year-one gain of 5.7%.  Year two is historically the worst year of the cycle with an average gain of just 4.54%, and in Trump’s second year, the S&P actually fell 6.2%.  So far this year, the S&P is up 24.5% versus the average gain of 12.8% during year three of the cycle.  As shown in the chart, year four generally trends positively but experiences pullbacks shortly after Q1 and again in October leading up the Election Day before closing out the year strong.

Stocks fell on Wednesday in the US after Reuters said the “Phase One” agreement could be pushed into 2020. It was the S&P’s first back-to-back decline since October 8th.

The tension over Hong Kong does not bode well for stocks, or for risk assets more generally.

“Congress is sending an unmistakable message to the world that the US stands in solidarity with freedom-loving people of Hong Kong and that we fully support their fight”, Nancy Pelosi said on the House floor Wednesday. “This has been a very unifying issue for us”.

Marco Rubio “urged” Trump to “sign this critical bill into law as soon as possible”.

As for Beijing, suffice to say China sees this not only as an unacceptable intrusion into the country’s internal affairs, but as an egregious violation of international law.

Strap in, things could be about to get interesting. Or, as Trump would say, “the ratings will be tremendous”.


 

1 comment on “Trump To Risk Standoff With Xi, Will Sign Hong Kong Bill: Reports

  1. H-Man, talk about a rock and hard place. POTUS signs the Hong Kong bill, bye bye to tariffs compromise. Impeachment is not going well. Throw in Korea and that mess. No good news for the market. Geo-political runs the game.

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