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Rabo: Markets Scream Risk On Today… Until Trump Or Navarro Make Clear They Oppose Cutting Tariffs

Courtesy of ZeroHedge View original post here.

Submitted by Michael Every of Rabobank

So it’s another day where we are thrown a mass of trade-related news to try to scythe through towards common sense.

First, there is the ASEAN summit, wrapping up just round the corner (and a million miles) from me here in Bangkok. Some trade deals were done: New Zealand, for example, will get even easier access to Chinese markets…in the same week that two Chinese nationals studying at a NZ private school decided to parade up and down Auckland in PLA dress uniforms, including swords, while waving the Chinese flag. However, the Regional Comprehensive Economic Partnership (RCEP) fell through after India once again walked away on concerns over its relative power differential with China – just as it did from the Belt and Road Initiative.

What’s the pattern to trade there? Short India, long everyone else in the region? Or a recognition that the larger players, who are less reliant on trade, are seeing a very different picture to the smaller players, who have no choice but to look to free trade, even though they see the larger issues just as clearly. If so, Risk On or Risk Off?

More importantly, China then threw a spanner into the works of the much-hyped “phase one” US-China trade ‘deal’ via a surprise insistence on the removal of 15% tariffs on USD112bn worth of goods imposed on 1 September – otherwise they won’t sign. What a tactical surprise that must be to someone who wrote in The Art of the Deal: “I've read hundreds of books about China over the decades. I know the Chinese. I've made a lot of money with the Chinese. I understand the Chinese mind.” Risk Off!

More surprising is the FT is reporting the US is considering doing exactly that. Risk On! But really? Only if by “the US” the story writers mean “some doves within the White House”, because the story makes clear US hawks oppose the concession and Trump himself is regarded as an obstacle rather than a proponent. Perhaps not a surprise given it would open him up to charges of looking weak on China, having been wrong on tariffs, and being a poor negotiator – he also wrote "The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you're dead," in The Art of the Deal. Of course, that won’t stop markets screaming Risk On today – until Trump or Navarro make clear they are opposed. CNY is already testing back towards 7, bond yields are higher, and US stock futures are suggesting another all-time high. After all, we have an election in just under a year, so anything goes, right?

Plus, it’s been so long since the markets were given any gifts. I mean, it’s been literally days since an extra 25bp Fed rate-cut was tossed their way. And weeks since the Fed ramped up its Repo operations to a QE scale (even if we aren’t allowed to call it QE). It was certainly time for another goodie to be thrown our way, right?

Perhaps underlining why we seem reliant on increasingly desperate measures, and statements, to keep asset markets happy, consider this peach of piece of advice from new ECB President Lagarde: “We should be happier to have a job than to have our savings protected.” Quite the humdinger, the more you play it over in your mind. Equally, so was Hong Kong’s TVB reporting that the ear of a LegCo candidate “dropped off” over the weekend. On the trade news, on the idea that having a job is all that matters, and that human anatomy can ‘plop’ to the floor by itself, I must again share this classic Blackadder moment:

Nursie: Another good idea. You’re so clever today, you’d better make sure your foot doesn’t fall off.

Queenie: Is that what happens when you have a good idea? Your foot falls off?

Nursie: Certainly is. My brother had the idea of cutting his toenails with a scythe, and his foot fell off!

 


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