China Patience

China is in no rush to make a trade deal.  Their backtracking on making changes to Chinese law shouldn't be a surprise.  It would have been a surprise if China gave up their legislative powers to the US just to get back to the status quo of no tariffs and free-for-all technology theft and piracy.  China, unlike the US, is willing to blatantly intervene in their stock market to support consumer confidence.  Xi doesn't have to worry about elections or the economy.  He is president for life.  He is on a completely different time table than Trump.  Trump is worried about the economy in 2020 because that will determine his fate in the next election.  Xi is only worried about securing his power, which he has a firm grip on.  Just like it is popular for Trump to be tough on China, it is popular for Xi to be tough on the US.  The Chinese are much more nationalist than Americans, so it is an easy sell to the Chinese public to wage a trade war with the US that they can blame Trump for starting. 

From a game theory perspective, the only way a trade deal gets done is if Trump caves in and signs a weak US China deal that doesn't really change anything.  And that is what the market wants and is expecting.  Its just that the time line for that getting done has been extended, since the only real catalyst for a deal is a weakening stock market, which will make Trump more anxious to do a deal. 

Paradoxically, a weaker US stock market will eventually lead to a higher US stock market.  If the SPX stays above 2800, Trump will feel comfortable enough to drag this out and hope that China blinks.  But China won't blink.

SPX is on a mission to test 2800, the last support zone during the post March FOMC pullback.  The market is in show me mode now, the BS about constructive talks is not going to do it anymore when the actions speak much louder than words (China just retaliated with their own set of tariffs on US goods starting June 1).  The uncertainty on trade is toxic for this market, and hedge funds are long enough that they will be forced to puke out their positions lower, and won't be able to buy the dip. 

Expecting a test of SPX 2800 this week, likely sooner than later.