You Two Make A Great Decoupling

A hodgepodge of catalysts supported risk appetite early in the new week, including news that the Trump administration has privately told Apple (among other companies) that the president’s executive order targeting WeChat doesn’t necessarily apply to doing business with the app in China. Apple may have been disproportionately affected, a highly undesirable outcome for markets given its influence on the S&P.

US officials are now coming to terms with the reality that an inflexible, across-the-board ban on WeChat simply isn’t feasible due to the impact it would have on a variety of US businesses. Donald Trump’s edict will need to be qualified, in order to ensure industries ranging from technology to gaming to retail are not disrupted. “If the business community can’t use WeChat in China, from advertising to processing payments, it’s a short cut to decoupling the two economies”, one expert said.

It’s still unclear whether The White House intends to allow Apple and Google to offer the app in their stores outside of the US.

Officials who spoke to Bloomberg said WeChat “won’t completely vanish in the US, but their aim is to prohibit any downloads or updates of the app in the country”. Of course, it’s not exactly as if WeChat is ubiquitous stateside, so one is left to wonder what the point was other than to irritate Beijing. TikTok is poised to sue Trump over his various efforts to strong-arm the company and extract a piece of the proceeds from any sale.

In any event, Tencent (WeChat’s parent) staged a nice relief rally Monday in Hong Kong, adding some $37 billion in market cap in the process. The shares have now reclaimed most of the nearly $70 billion wiped away over the sessions in and around Trump’s executive order (red in the figure). Companies as diverse as Walmart and GM have lobbied the administration over the WeChat ban.

Meanwhile, ostensible progress on COVID therapeutics (i.e., the FDA’s approval of plasma therapy), gave risk assets an extra bump to kick off a week that’s expected to be defined by Jerome Powell’s speech at this year’s virtual Jackson Hole symposium.

“The Fed is dovish by any measure, trying only to find the best way to signal that”, SocGen’s Kit Juckes wrote Monday. “The danger at this point is that the market is too heavily biased in favor of a degree of dovishness even Jay Powell can’t deliver (yet)”.

European equities hit a one-week high and the MSCI AsiaPac index is on track for its best August performance in 17 years. It would be the fifth straight monthly gain for the regional benchmark.

The usual banter emerged from Beijing Monday vis-à-vis the Trump administration. Although the US and China can make it through “hard times”, the US is “behaving like anything but a major power”, Foreign ministry spokesman Zhao Lijian remarked.

“US-China relations continue to deteriorate”, Rabobank’s Michael Every wrote, in a characteristically colorful daily. He summarizes the state of affairs with allusions to a pair of amusing stories, one of which involves a push to strip Xi of his “President” title in official US documents and another centers around a revived effort to force China to make good on pre-revolutionary debt:

In the last few days we have seen two new bills proposed: one will not allow Xi Jinping to be called ‘president’ in any US government documentation, using his title of ‘Party Chairman’ instead – which is arguably accurate when one looks at his Chinese language title, but which also underlines the increasingly-stark systemic differences between the US and China; the second is a claim that China must repay USD1.6 trillion in pre-1949 government debt it defaulted on after the revolution. Neither sound like détente; and neither does President Trump, whose Republican National Convention will be ultra-hawkish on China this week, talking about decoupling the two countries in a Fox TV interview. Indeed, the South China Morning Post today asks “Is Donald Trump bluffing about starting a financial war with China? Chinese officials aren’t so sure.

This is all indicative of opportunistic behavior — everyone wants in on the “decoupling” trend, especially if there’s a way to capitalize, either politically or financially.

In his daily press briefing, China’s Zhao said the world’s two superpowers should be cooperating instead of decoupling because… well, because the future of the planet probably depends on it.


2 comments on “You Two Make A Great Decoupling

  1. Xi can afford to wait a bit longer.

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