by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
October 11, 2019
THE BIGGEST POLICY ISSUE FOR THE MARKETS has nothing to do with impeachment or Rudy Giuliani. It’s when the pervasive uncertainty over China trade will begin to subside, which would give farmers, businesses and the Federal Reserve some much-needed clarity.
THE MARKETS HANG ON EVERY STATEMENT FROM WASHINGTON on a trade deal, so today’s meeting between Donald Trump and Chinese Vice Chairman Liu will be important. Our bet is that both will proclaim that progress is coming; a piecemeal deal may be back on track.
THERE’S PLENTY OF LOW-HANGING FRUIT: An announcement — as early as today — would focus on the easy stuff: promises by China to buy more U.S. energy and agricultural products, a pledge by China on currency manipulation, a potential freeze on new U.S. tariffs, set to take effect on Oct. 15 and Dec. 15, and a controversial U.S. pledge to allow American companies to deal with Huawei.
THE TOUGH STUFF — including Chinese intellectual property theft and its subsidies to state-owned companies — may require many more months of negotiations, and creating an iron-clad enforcement mechanism will be a daunting task.
BUT THE MESSAGE TO THE MARKETS could be as follows: this enormous negative may not get worse, and upcoming new tariffs may be postponed. Even if a deal later this year is less than sweeping, a piecemeal agreement would be extremely positive for the markets — perhaps still another reason why a recession is not imminent.
TRUMP BADLY NEEDS A TRADE VICTORY as he slips in the polls and infuriates Republicans with his abandonment of the Kurds. This particularly bad week for him has been capped by the arrest of two shady characters linked to Rudy Giuliani, who is considered an albatross by most Republicans.
SO NOW THERE’S STILL ANOTHER angle to the Ukraine story, with speculation about plea bargains and tape recordings. Thus for Trump, even a hint of a China trade deal would make good political sense. No one can spin like Trump, and we suspect he will spin today that real progress is coming on trade. The devil, of course, will be in the details.
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This post was first published at the AGF Perspectives Blog.
