Sunday night in the U.S. the futures market comes alive with the first trades of the new week. The overarching difference for this week in comparison to the usual, is this will be one week that is anything but “usual.”
Currently both the trade negotiations between China and the U.S., along with the negotiations between the politburo and Hong Kong, seems to be sending the same type of signals. i.e., Mixed, with no clear resolution possible without one side basically caving to the other. There’s a lot of “maybes and possibilities,” yet there’s never anything for real agreement. Only agreement to future maybes and possibilities. Rinse, repeat.
It was reported that China is supposedly willing to forgo any tariffs on pork or agricultural products in exchange for the U.S. to agree to some version of the newest, latest, greatest “Phase One” deal. However, what’s at the heart of this (my conjecture) is the Sword of Damocles equivalent scheduled for December 15th (Sunday) which is the newest, latest, greatest round of tariffs imposed by the U.S. on even more Chinese goods.
This offering from China shows anyone with a modicum of business acumen to be both insincere, as well as a badly played negotiation tactic. i.e., China needs (it’s called food for a reason) what they are offering to buy, and offering nothing in return but more talk is just that – talk. The administration (along with the Chinese politburo) can hear the growling stomachs of an ever growing populace from across the waters. Again, in “Negotiations 101” – this would be a text book no-no to make.
This was once a plausible “take it, take anything” scenario from China thinking Trump was now desperate and needing something for the “win” column. Prior to this past Friday, that was a possible consideration, but no more.
The now, very real problem for China, is that the Trump administration is now in position of saying “No,” from a position of strength, not weakness.
The latest employment figures was the administration’s “Get out of trade-jail” card. China seems to have been leaning towards and calculating from the idea that with all the political gyrations going on in the U.S. it would work to their benefit. It has not.
China’s economy is the one showing very visible signs of massive disruption within its banking and real estate sectors, the underpinnings that keeps everything thought about China afloat.
If that falls? All bets are off, and it’s already teetering, “bigly.” Then: there’s Hong Kong.
The U.S.’s official declarations of solidarity with the protesters in Hong Kong threw a wrinkle into not only China’s negotiating stance, but also House Democrats.
Although I agree with the declaration, I also believe this was drawn up so quickly as mostly another impediment to be thrown at the administration to gum-up the works in getting a trade deal to further hurt his re-election chances. Think I’m off base? Hint: When was the last time the House rushed to do the same thing when protestors in other countries rose up against their totalitarian overlords? It’s OK, I’ll wait.
To reiterate, this has now added strength to the administration’s posture because China is sooner, rather than later, going to need to show its true hand, or should I say, iron fist, to Hong Kong. For there’s no communist leader worth their salt in the eyes of Mao, Stalin and others that will allow this to go on much further or longer. Period. And Xi has shown he aspires to be not their equal, but – The One and only.
Monday morning in Asia (Sunday night U.S.) the markets will open and the positioning for the very real prospects of not only a “No deal” resolution will need to be calculated and positioned for. But what will really take hold is the realization that the December 15th prospects of further tariffs imposed on China will take front seat.
This could cause further gyrations in not only their markets and the Yuan, but could intensify with immediacy a far more hostile rhetorical posture emanating from the politburo. This is what I would be on the lookout for in what some would call ” a first hint” that things are about to go from bad to worse.
On Tuesday and Wednesday we have the Federal Reserve’s conclave of the FOMC. The implied odds for a possible rate cut at this meeting is about nil. However, what will be “Must Watch TV!” will be Mr. Powell’s press conference.
What is now evident, to everyone, is that the latest “NotQE4” program launched by the Fed is far larger than any one ever contemplated. I also propose: even the Fed itself. As a matter of fact the Fed had thrown more money in such little time that it dwarfs all prior examples. And yet, they still argue “It’s not QE!” Of course it isn’t, and pigs really do fly with enough lipstick applied.
The problem here is that the more money they print then throw – the more the market is demanding with a list of “oversubscribed” figures that would make holiday season “BOGO” (buy one get one free) campaign envious.
All eyes (and ears) will be on precisely how squeamish, uneasy or, mealy mouth the Chair responds to the most obvious questions that will surely be put forth, such as:
- How “temporary” are all these “temporary stabilization programs” going to remain?
- Does the Fed see any hard disruption possible if tariffs are enacted on Sunday? And what are they prepared to do if so?
- Does the Fed see even more cause for concern for market positioning into year end tax problems such as that they addressed prior in the Fall? And if this is what they had to do to address that, what are they willing to do if year end is even worse?
- How many more rate cuts does the Fed see for 2020 and is the Fed prepared to go to Zero? Because if inflation is now being said to be allowed to run “over” the Fed’s 2% goal. Doesn’t the Fed need to get down to at least zero – and soon – to facilitate that?
The above is only a sample, but the the answers to these alone will be ones that will be carefully analyzed by the headline seeking algorithmic bots that make up the “markets” today.
There also may be many a time the “markets” swing wildly and widely on any comment or phrase spoken or released in the preliminarily text. The bots will give Mr. Powell every moment of that presser to either qualify or rescind anything the market doesn’t like. But after? Let’s just say the term “not a chance” comes to mind.
Oh, and by the way, the term “wildly and widely” was not said for hyperbole, but rather, for true probability. The reason for it is this…
We are now entering the week for what is known as “Quad-witching.” This is the equivalent of not just one casino settling up and paying off all bets, but that one in four period of time when the equivalent of the entire Vegas Strip does the same – in unison.
Match this is up with a miscue or wrong-signaling from the Fed, possible trade deal disaster, imposing further tariffs, an impeachment vote, Hong Kong smack down, possible sudden Yuan devaluation, year end locking in of profits (aka “SELL!”) and you’ve got quite the ingredients for a year end fireworks show. And those are just the first ones that come to mind. I didn’t even mention Europe.
So here we are and now what you have is the culmination (possibly globally) of a “take the money and run” scenario that could make a “Bull in a china shop” look calm in comparison.
As always, we shall see.
© 2019 Mark St.Cyr