November 20, 2019
Stop me if you’ve heard this one before: ‘sources say, trade deal might not happen.’
These unnamed “insiders” appear to spend a lot of time communicating with journalists, as these headlines come in almost daily.
The key words from these headlines are picked up instantly by the algorithmic trading systems of hedge funds, and we get immediate selling. The selling fades (and likely turns into buying by the same hedge funds) and we get a V-shaped bounce.
Still, disappointment on a trade deal continues to be considered the biggest risk to markets. But it’s probably overblown. The position that has been taken by the Fed and ECB are probably more important at this point, both expanding their respective balance sheets again. That’s a shock absorber for financial markets and the global economy.
And with respect to the China deal, as time has passed between the hand shake in the Oval Office (between Trump and China’s Vice Premier) and now, people seem to forget who has the position of strength.
As we’ve discussed, Trump regained his leverage on China back in October. He telegraphed how the specter of the fight might change, by taking aim at the human rights abuses of the CCP. If China chooses to hold out on a deal (in hopes of waiting it out through the election), Trump can escalate the focus on China’s human rights record, making “dealing with China” the biggest issue in the U.S. election, and in geopolitics.