The Summit

China clearly wants a deal. Does Trump? The answer to this question is perhaps the answer to the next big move in markets.

I give you my attempt at a psychological profile and its potential impact on these talks this weekend and I recognize that some of you may not like what I’m about to say. I’m not political, but I always give you my analytical assessment as it relates to potential market impact and you are free to disagree with it obviously.

We’re in a headline driven environment at the moment. And we will be in this environment until there’s certainty about the discussed triggers (see also Bear Trap). Best just accept that. Last night after the close markets dropped on Trump threatening more tariffs on China and $AAPL to boot. This morning on Europe open a fake China headline ripped futures higher by 20 handles in an instant only to give it all back in minutes. 40 handle round trip. Non tradable nonsense.

But it says something. Next Monday is shaping up to be a huge gap event as Trump and Xi are set to meet following the G20 summit. A positive resolution and we could open up 50-100 handles. That’s what this algo action is telling me. If you can get 20 handles in mere seconds on just an obscure headline the real deal would cause a massive relief rip.

And yes US companies are being hurt by this trade war show. And a lack of resolution by Monday and the prospects of further tariffs is obviously not what the market wants to hear this weekend. So what are the prospects and motivations for a deal?

Trump thrives on artificial conflict. Why? Because he does not peddle in substance. He won’t win an argument on substance and he never has. Why? Because he can’t and he doesn’t want to. He has never studied anything. He refuses to read, he doesn’t go into details, he dismisses facts when they don’t suit his opinion based narratives. From my observation he is probably the least educated and knowledgable person on any subject in the global public sphere. He keeps stating things that are simply not true or factual. A deeply ignorant and arrogant man. But he is transactional. He uses bluster, fear and unrealism and outlandish claims to move his opponents. And it has worked all his life. So why study anything.

And the lack of subject matter expertise has not gone unnoticed and is causing increasing frustration:

Was motivates Trump? Power and perception. Like no president in history he’s been obsessing about stock market levels as a measure of self worth and success. But he can’t do that anymore. The narrative of winning elections also died during the mid terms. The tax cut glow is coming off fast as GDP growth is moving back into a 2% regime. The fantasy of manufacturing coming back to the US also died yesterday with GM’s factory shutting and mass layoff announcement and the public pressure is building:

Farmers are requiring government subsidies because they are getting hammered with this trade war. The Mueller investigation is weighing heavily on his mind as he knows a report is coming and it will be brutal, hence the tweets again yesterday.

So what, exactly, does he have to show for as we approach the end of the year? Slowing growth? A ballooning deficit and runaway debt? A lost election? A now hostile House? Companies and consumers realizing they’re getting hurt by trade wars he started? The prospect of a market crash and ensuing recession into 2019?

No, Trump needs a perceived win. The GOP has supported him because of his strong hold on his base. That base will continue to support him until they get economically hurt and the signs are starting to mount that they will. 10% tariffs on $AAPL products? Please. He claimed yesterday it won’t have an impact and consumers can digest it. That’s not reality based. 25% tariffs on current targeted goods and 10% tariffs on everything China related by January won’t hurt consumers who shop at Target and Walmart? Please. 90% of products sold there are from China. Of course it would have an impact. And so will layoffs as companies are dealing with shrinking margins.

What would constitute a win? A trade deal with China he can present as a victory and a massive stock market rally into year end as a result of it. Larry Kudlow knows all this and Larry is obviously very attuned to markets and he also knows the price of failure.

Bottomline: There’s a lot of incentive to come out of this weekend with good news. There’s virtually zero incentive to come out with bad news. Hence, in my view, last night’s threats were likely posturing ahead of the negotiations this weekend.

I may be wrong of course, but in a rational world, and this presumption may be a stretch on my part, there’s all the incentive in the world to present good news by Monday next week. It may not be a final agreement, but they may strongly signal at one being imminent and that may be all that’s needed.

For failure to show credible positive progress would not bode well for markets in dire need of good news.

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Categories: Opinion

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