by Greg Valliere, AGF Management Ltd.
WON’T GET FOOLED AGAIN: So we have a China trade deal — an exceedingly modest deal, which apparently is an “agreement in principle.” That’s better than nothing, but excuse us for playing the holiday Grinch; the details of this deal aren’t clear.
BUT THE DETAILS AREN’T AS IMPORTANT for the White House as the stock market, which continued its astonishing 2019 rally yesterday, largely based on a sense that predictability will emerge for U.S. farmers and businesses that rely on China trade. That now seems likely — once we see the details.
CHINA TRADE HAWKS SCOFFED at the reported agreement yesterday. We heard from several skeptics who said, essentially: “We went through a year of mediocre economic growth just to get this wimpy deal?”
IN THE HOLIDAY SPIRIT, we applaud any deal that reduces trade tension and forces China to reform. But let’s be realistic: the reforms and may evade enforcement; China’s promised purchases of U.S. goods were long-anticipated; and this year-long struggle has produced deep antipathy between the two countries, which bodes poorly for any kind of sweeping Phase Two deal.
BUT IT’S A WIN FOR DONALD TRUMP, who’s enjoying the most remarkable month of his presidency. Never mind that the USMCA trade deal has encountered fierce Republican resistance, it was a win for Trump (even though enactment is many weeks away). Trump is close to a budget deal, and has won creation of a new Space Force and paid parental leave for federal employees. And as a bonus, he probably will take some credit for Boris Johnson’s stunning landslide.
AS FOR IMPEACHMENT, ALL YOU NEED TO KNOW is that Mitch McConnell stated yesterday that there may be no Republican defectors in the Senate, zero, hardly the 20 needed to oust Trump. Every member of the House and Senate knows how this movie will end — and among Democrats we’ve talked with this week, there’s a sense of gloom over the party’s presidential election prospects.
WHAT DOES THIS MEAN FOR THE MARKETS? For investors, the two remaining issues for 2019 were China trade and Brexit, and the outcome for both, while not certain, looks clearer this morning. This begs a question: is there any more upside news the markets can look forward to — or is it all baked in?
MARKETS ANTICIPATE, THEY BUY ON THE RUMOR, as Trump knows, and he has adroitly massaged market sentiment. But now what? We worry when we sense euphoria and an overwhelming consensus; does a market hangover loom after a party this giddy?
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This post was first published at the AGF Perspectives Blog.
