After the “trade truce” at the G20 it was looking more like the US and China may get a trade deal done soon. However, news out recently says otherwise, as China has not boosted its purchases of US agricultural products. Such a move was a key tenet of the agreement Trump apparently struck with Xi at the G20, but Beijing has not followed through on the promise. Trump complained publicly about this yesterday, but China denies they ever made such an agreement.
FINSUM: This seems small and petty but it is precisely not the direction that one would like these talks to be headed in.
Donald Trump did something many might not have expected when he met Xi Jinping recently at the G20 conference: he told him he would dial down the criticism of China regarding the demonstrations in Hong Kong in order to get Beijing back to the negotiating table. The offer apparently echoed a previous one he had made to Xi in the week leading up to the conference. The plan worked and China has agreed to resume trade talks.
FINSUM: While many may disagree with the concession to China, we think this shows one thing very clearly: Trump does not want to let the trade war derail the US economy or markets and will likely do whatever is in his power to keep them afloat.
Will the US and China make a substantial trade deal? That is a trillion Dollar question for markets. Some argue that China may defer doing any deal and take the risk that Trump does not win the election, effectively letting the clock run out. However, an astute view is that China might be desperate to do deal while Trump is still in office. The reason why is that if Trump were to lose to a Democrat, who in all likelihood would be a more conventional US president that takes a much friendlier approach with international allies, then China would be in a very compromised position. A Democratic president would likely approach the Chinese trade deal with a much more united front of trade allies, which would be a worst case scenario for Beijing.
FINSUM: The irony of this is that Trump has been by far the hardest president on China in memory, but at the same time, the Chinese have the best chance at a good resolution by dealing with him.
America tends to be very US-centric, but right now it would be wise to pay attention to some global economic signals. In particular, manufacturing is starting to look very weak across the world, and the negative wave is already impacting the US. Factory output across Europe and Asia declined in June, and the US’ barely rose. Globally, it was a second straight month of contractions, something that has not happened since 2012. More specific data showed declining sales and production in both China and Germany.
FINSUM: The US has been sprayed with Teflon for most of this bull market, but given the global nature of the trade war, it seems like we may be starting to get sucked into the downturn.
Something very interesting is happening across commodities markets—they are rallying. The reason this is interesting is it is a broad-based rally, not just in a narrow safe haven like gold. Oil, a major barometer for growth, is also jumping. The reasons why are two-part. Firstly, the US and China seemed to ease trade tensions somewhat this week at the G20; but secondly, OPEC has said it is cutting oil output. Metals, grains, and emerging markets also rallied.
FINSUM: This makes sense because a de-escalation of the trade war would help the global economy. Further, a reduction in tariffs would simply make the flow of commodities and goods smoother once again.