Let it ride—or cash in now? Inflows into China's mainland equities nearly hit a billion dollars on ... [+]
It’s three days before D-day for China. President Trump is supposed to decide then on slapping 25% tariffs on some $150 billion worth of consumer goods. It now looks like those tariffs will be put on hold.
The X-Trackers China CSI-300 (ASHR) exchange-traded fund rose over 1% on the news. ASHR is up 27% year-to-date, besting the MSCI Emerging Markets Index and slightly outperforming the S&P 500. Another trade truce would likely carry mainland China equity gains into the new year.
Trump sent China stocks higher Thursday morning after a morning tease on his Twitter page saying a trade deal was close. Both sides want one, he said in all-capital letters.
Whenever Trump tweets positively about China trade, stocks rise. Whenever he tweets negatively, stocks fall. At this point, the rise and fall of the stock market on the whims of Trump stream-of-conscious should surprise no one. They should also be considered temporary moves.
The trade war is not over.
Nevertheless, Trump’s comments sent gold prices lower today, peaking just before he made his market-moving comment.
There was also fresh commentary from new European Central Bank President Christine Lagarde hinting that the euro zone’s negative-interest-rate policy experiment is coming to an end. Lagarde plus China have been the biggest blow to safety-net assets today. Trump (and Twitter) started the risk rally up again.
Dow Jones Newswires reported late morning that there were whispers on the Trump trade team about reducing existing tariff rates up to 50%.
Peter Navarro, director of the National Trade Council. Until he quits the Trump administration, ... [+]
Unless U.S. Trade Representative Robert Lighthizer, National Trade Council director Peter Navarro, or the president himself, are saying that, then it’s wishful thinking being leaked out of Team Treasury or Commerce.
Navarro knows how to fight guerrilla economic warfare. He has been telling the market for the past week that the U.S. might not ink a phase one trade deal at all this year, prepping investors for the long battle. Unless Navarro—and Lighthizer—leave the Trump administration in 2020, then investors would be prudent to assume a return to pre-trade-war tariffs is not in the cards.
JPMorgan Chief Executive Jamie Dimon was popular this morning on financial Twitter for his lobbying for a trade deal. Few think Dimon brings anything remarkable to the table on this anyway. This is the Davos crowd hemming and hawing about free trade, something China has never practiced.
It seems the Chinese side is rolling back their initial call to remove all tariffs before a phase one mini-deal is signed by Xi Jinping. They are now saying they want the December 15 tariffs cancelled as their precondition for dealing, which, if true, gives Trump no reason to lower existing tariffs, if China is no longer demanding it to further talks.
The December pause is doable, and positive for the market if it happens. It would be positive for U.S. farmers if China returns to soy purchases as well. But don’t expect that to remain the case next year. China has been promising a return to normal for at least 12 months on agriculture and is far behind historic average purchases of U.S. soy.
Investors shouldn’t be surprised if the velvet comes off the gloves in 2020, barring a surprising change in policy from Beijing.
The market has been bemoaning tariffs since they were first put in place last year, despite reaching new highs. The labor market is solid. Yesterday’s decision by the Federal Reserve not to lower interest rates gives Trump a reason to cancel the December tariffs, but few see any real need to reduce existing ones.
China needs those tariffs reduced more than Americans do, even if it is American companies paying the price at the port.
China's President Xi Jinping. The WSJ reported on Thursday that the Trump administration was ... [+]
That’s because companies are continuing to relocate out of China due to the higher costs of doing business there and trade uncertainty.
Last month, the German Chamber of Commerce said that 23% of its member firms in China have either left China or are considering it.
Mainland China investors are done for the day, but unless Trump changes his tune today, Friday is shaping up to be a good one ahead of Sunday’s tariff deadline.
There is also the Central Economy Work Conference finishing up, a meeting-of-the-minds in China, which tends to provide clues to economic policy. Investors will have a better sense of the outcome of those meetings tomorrow.
In the meantime, China’s stock market surprised everyone over the last 12 months, making up ground since Trump’s election.
Northbound Connect money flow is positive into mainland China securities from Hong Kong. Today saw over $900 million invested into Chinese company shares listed in Shanghai and Shenzhen coming from Hong Kong brokerages.
