It is a global market as most realize. BMW makes all of certain SUV series in Spartanburg, South Carolina and a sizeable export market from there. Mercedes Benz are made in Tuscaloosa, Alabama, writes our roving Trader Gene Inger from Paris, France Friday.

And BMW is building that lower-cost huge plant in Mexico.

So, I think Team Trump has to look at all sides of this.

For the moment, regardless of S&P 500 (SPX) rebounds, the balls are very much still being juggled in the air; and hopefully will settle down with a deal within a reasonable time. Meanwhile the market rallies on hopes and if or as they are dashed; immediately dislikes uncertainty. It’s treacherous.     

Reuters: Wall Street surges Friday on news about US trading partners.

Thawing trade tensions are what this market awaited. Claims or denial of progress alternate, and really its tricky for investors to estimate earning or other potential levels ahead, especially as pertains to growth variations that can vary widely, depending on the outcome of these testy politics.  

chart 1 

Hours before Friday’s New York opening, new reports of a resumption of a series of trade talks between China and the USA, buoyed the futures quite a bit. This proves my point that the market cares most about trade results and tariffs and less about other geopolitical aspects that are nevertheless of course concerning (like Turkey or any currency-alignments and so on).  

I felt all along that China and the U.S. never stopped all back-channel talks and that doing so a bit out of the public eye was perhaps helpful.

Also, you will recall that the prior Friday’s Reserve Requirement hike by the PBOC, in my opinion, was a sign that China blinked and was moving toward new conciliations with the U.S. on the trade/tariff front.

chart 2 

Resolving these disputes is essential. Markets do not perpetually advance on hope but on progress that’s signaling deals that can facilitate both a calming down of chaotic unknown prospects and restore faith in earnings power and growth looking forward.  

In that regard, even Trump’s team must recognize that logical self-interest of his base, of labor unions, and working Americans, is what brought his candidacy to the forefront and generally he’s tried to deliver on promises.

At the same time many of the unions are charged with the responsibility of their members’ interests, they have to know that cost & benefit structure arrangements have both assisted and been detrimental to industries when they have to compete globally. So, unless this resolves everyone losses.

chart 3 

It is a global market as most realize.

BMW makes all of certain SUV series in Spartanburg, South Carolina, producing 1,900 vehicles per day and actually a sizeable export market from there at this point. Models include X3, X4, X6, X7 SUVs.

Mercedes Benz models are made in Tuscaloosa, Alabama.

And BMW is building that lower-cost huge plant in Mexico.

Here are all the vehicles German auto brands sell and build in the U.S.

So, I think Team Trump has to look at all sides of this (especially Canada too) and get down to cementing deals. Perhaps just in time for a big market lift ahead of midterm elections, as by then there should be trade visibility as a bare minimum. Ideally, we’ll get a deal with Mexico first, then with China. 

chart 4 

In-sum: China probably believes they could devalue and just wait out our vote.

However, doing so creates more pressures for them and risks market meltdowns if they were to reverse the sane monetary move of the PBOC. I suspect Trump will make them an offer they can’t refuse, whether overtly visible or not in order to get a deal done in time for the election.

It’s likely a clear indication of less favorable terms offered if they defer too long.

Subscribe to the IngerLetter here