Trump vs. Xi/Powell

Nonstop action in the overnight market these days.  Xi and Trump exchanging bombs every few hours, and the latest curveball, thrown by Trump, after he drops the tariff hammer down on Friday, and then tries to pump the equity futures higher with an out of the blue trade deal soundbite. 

It is either utter madness or masterful market manipulation by Trump and crew.  Occam's razor and Trump haters would support the first conclusion, and the conspiracy theorists and market cynics would believe the second conclusion. 

Who is the bigger enemy of the US:  Powell or Xi?  Trump comes from the old Nazi propaganda school (Joseph Goebels): "if you are going to tell a lie, tell a big one, and if you tell it often enough, people will begin to believe it".  His repeated attacks on Powell for not cutting rates or providing easier monetary policy is aimed straight at those without a strong opinion on Powell and the Fed.  Those who believe in the Fed and Powell will not be swayed.  Those who don't like the Fed and Powell already want to fire him.  And those in the middle are the ones that Trump is targeting to persuade that Powell is the fall guy if the US economy gets weak in the next 12 months. 

Look at the totality of Trump and Xi's actions over the past few months, it is clear that Trump is getting more desperate, and Xi is getting more comfortable.  There are a few different aspects of the trade war, and one of the most important is optics.  The optics of Trump and Xi couldn't be further apart.  Trump's random tariff approach has created more enemies along the way, from those in industry, to those on Wall Street, to farmers, by creating volatility out of the blue.  It makes Trump look worse and worse not just in US and China, but globally where unwelcome financial market volatility is blamed on Trump, not Xi. 

Xi has quietly wiggled his way out of promises and woven an exquisite path of lies, deception, and timely counterattacks (on a Friday morning, right before the US market open and Powell's Jackson Hole speech and ahead of the weekend) to induce Trump to overreact and hurt the US and himself, as well as China.  But the Chinese with the media under full CCP control, doesn't show the total picture, but a biased one which easily builds up nationalist support for Xi in China, as he battles Trump.  So even though the Chinese economy will feel pain from the tariff measures, the brunt of the pain is felt by US consumers, who end up having to pay the taxes on goods, creating tariff-related cost push inflation. 

Xi is also better delegating the news breaks to the public by going through his underlings and media outlets rather than putting out the news himself.  It gives the illusion that Xi's hands are clean when he delegates the dirty work of releasing counter measures to those below. 

So if the US economy turns sour, most people will not be blaming Xi or Powell, but Trump. 

It is quickly forgotten that the reason there was no trade deal this spring was because Xi backed out and reneged on his promises to make IP theft and forced technology transfer illegal under Chinese law.  That and pretty much everything else that Xi promised up to that point were revised and deleted in the final text of the Chinese offer.  So with the market at all time highs, Trump had plenty of confidence and fearlessness in putting on additional tariffs.  But as soon as the stock market started dropping almost every day (May), he got soft, and backed off Huawei and delayed some tariffs. 

That is why Trump pushed the tariff deadline from September 1 to December 15, not because it would hurt the consumer, as he said, but because he was seeing the stock market dropping and Wall St. panicking over his latest round of tariffs.  When the markets start dropping, Trump goes soft. 

That is what is happening in the overnight markets, as Trump saw the stock market reaction and felt a need to rescue the markets again after his emotional tariff outburst on Friday by giving the market some hope that a Chinese deal is right around the corner.  But Xi isn't going to play along.  It is clear the Chinese are looking for a nothingburger deal that allows the status quo of the last 20 years to continue, with minor concessions such as soybean, corn, and US beef/pork purchases. 

And I just don't see Trump desperate enough to swallow such a bad deal and try to sell it to the American public.  Maybe in another 6 months, if the US economy shows more signs of slowing, and the stock market is notably weaker.  But not now, when the stock market is still trading only 5% below all time highs, and the US economy still hasn't rolled over. 

So if you are going to be bullish on the stock market, it shouldn't be based on possibilities of a trade deal.  It would be because there is some fear out there, the ECB will come out with a big stimulus package, that the European economy is not getting worse, and the lower interest rates are providing a stimulus for housing and through refis.  Those are legitimate reasons, but also not strong enough to provide fuel for a long sustained rally.  So I am still leaning bearish, but would like to see less fear and more complacency before I go back on the short side. 

It is just crazy action since Trump lit a fire under the market with his additional tariffs tweets.  I was expecting the market to grind higher for the next 2-3 weeks, but it may chop around for a few more days before bouncing again.  With this big gap up in pre market, it takes away a lot of the potential juice from the long side so nothing compelling to do here.  Without a Trump pump overnight, we could have made a washout low today, but that has gone out the window.  So its probably lackluster trading from here, with no real edge either way.