Donald Trump noticed that jobless claims spiked 49,000 to a two-year high in the week ended December 7, so he opened his Twitter app and delivered an upbeat assessment on the trade talks.
We jest. Well, not entirely. Claims did spike to 252,000 (see the chart) on seasonal noise, but that’s not why Trump tweeted about the Sino-US trade discussions on Thursday, just minutes after the opening bell on Wall Street.
Rather, Trump appears to have noticed that his former partner in populism, Steve Bannon, was on CNBC talking up the possibility that the November jobs report might just prompt the White House to abandon the talks with Beijing on the way to imposing the tariffs planned for Sunday.
And it wasn’t just Bannon. Agriculture Secretary Sonny Perdue – who earlier this week stoked optimism when he said that in his view, the new levies would not go into effect – told Fox Business that China is not willing to commit contractually to buying $50 billion in farm products. Rather, Beijing is only willing to make that promise behind closed doors.
That’s not exactly a surprise. After all, Trump’s “target range” for purchases is far-fetched in the extreme, something we’ve been over in these pages on too many occasions to count (see chart below and also “As Trade Talks Hang By A Thread, A Soybean Problem Emerges“).
And yet, between Bannon and Perdue, a pall of sorts was cast over nervous markets, as the clock ticks down under four days before a decision needs to be made about the planned December 15 levies.
Rather than chance another selloff, Trump tweeted this five minutes after the opening bell:
Getting VERY close to a BIG DEAL with China. They want it, and so do we!
— Donald J. Trump (@realDonaldTrump) December 12, 2019
Shortly thereafter, Dow Jones broke the news. US officials have offered to cut existing tariffs by up to 50% on $360 billion worth of Chinese imports.
Washington has also offered to cancel the next round of tariffs scheduled for Sunday.
As part of the interim agreement, the US would stipulate that if China does not carry out its pledges, tariffs would be reimposed at the original levels.
Stocks are obviously on the highs. Treasury yields are surging and the yuan is extending gains.
It appears as though Trump realizes the inherent peril of escalating things further at a time when the Fed, although dovish, clearly isn’t inclined to provide any more overt cover.
Aside: As for the jump in claims, it’s not an issue. “December and January are the biggest months for labor market turnover for the year so consequently there is excessive volatility in the claims”, Jefferies said. “Looking ahead, we expect that claims will eventually return to the recent average. Bottom line is that there is nothing to see here”.