Donald Trump Suggests Post-Election China Deal Might Be Better

Alan Penny

3 December 2019

3 min read

China-US trade cogs symbol

  • Massive tariffs continue to be issue
  • More tariffs coming December 15
  • Trump suggests might be best to wait until after election
  • “Risk-off” trade-in reaction

It’s been stealing the headlines for months, the United States and China deal has been levying massive amounts of tariffs against each other in what has effectively been a running trade war. Billions of dollars of tariffs have been collected by each country, with a seemingly unending amount of drama surrounding the entire situation.

Beyond that, the situation is compounded by the fact that the two economies are relatively intertwined. One thing that is lost in the fray though is that the United States economy measured by GDP, is roughly 13.5 times the size of China’s, so quite often what we have seen has been an overreaction by Chinese comments.

the United States economy measured by GDP is roughly 13.5 times the size of China’s

Donald Trump isn’t exactly hesitant to fire off an errant comment. That is one of the things that markets are learning on right now, that perhaps the reaction is overdone. There are more tariffs set to be levied against Chinese goods on December 15, and markets are starting to focus on whether or not that comes to be.

Trump suggests post-election deal may be the best route

Donald Trump suggested the post-election time frame which might be the best for a Chinese deal would be in November 2020 or later. That has created market reactions, as algorithms start trading the “risk-off” trade, buying gold, selling anything that’s remotely tied to the Chinese trade. This includes the recently strengthening New Zealand dollar, and treasuries. It’s obvious that algorithms are still monitoring headlines and placing trades based upon it.

By suggesting a post-election deal, a pattern emerges: Donald Trump will say negative things when the stock market is at all-time highs because it gives them a bit of a “cushion” for any type of reaction. This has been the pattern for several months, just as in October when he suggested that the “Phase 1 deal” was all but gone. That jolted the market to the upside, as it had been slumping previously.

Like it or not, Donald Trump’s Twitter account, and in this case, a comment made to a reporter in London, control what happens with the S&P 500 and other markets around the world. This is simply a matter of psychology, and it will be interesting to see how long this reaction continues because it is not a scenario that seems to be as long-lasting as it was months ago.

Ultimately, this could cause a bit of a pullback in several of the stock markets around the world, but more importantly in the American indices. Those indices are a bit overbought, and this type of noise can give traders an opportunity to pick up a bit of value before the so-called “Santa Claus rally” on Wall Street. Beyond that, whether or not there is a US-China deal between now and the end of the year is a question that people have been asking, but that there are no signs of yet.

Written By
Alan Penny

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