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Trump Tweets Calms Markets, For Now

05/14/2019 12:49 pm EST

Focus: GLOBAL

Ashraf Laidi

Founder, Intermarket Strategy Ltd. and www.ashraflaidi.com

While a resolution on trade is in the interest of both the United States and China, that is no guarantee a deal will get done cautions Ashraf Laidi.

President Trump has just tweeted moments ago: "when the time is right we will make a deal with China,” demanding that China has to give more for the United States to regain lost ground.

Markets are up off their lows, with S&P 500 futures up 16 points, Dow futures up 127 and USDJPY at 109.66. 

UK employment rate fell to 3.8% from 3.9%, earnings growth (pay) dropped to 3.2% year over year from 3.5%. German ZEW business sentiment was mixed. 

Trade Stand off

Every negotiation involves some element of bluff. There's always the risk the other party will walk away from the table and spoil a win-win deal. In a political deal, the domestic side is always another voice in discussions and appearing strong is as important as the real thing.

What's clear is that a US-China deal is in the best interest of both countries and both leaders. Although mutual benefit was almost always the case in the past, history is filled with innumerable miscalculations that has led to far worse outcomes than trade wars.

So here we are with the United States scheduled to hit China with harsher tariffs and contemplating even more. China has announced retaliation and no talks are scheduled on either side. The market wasted no time reacting with a 2.4% fall in the S&P 500, more than doubling the cumulative loss over the past six sessions. The Shanghai Composite is down 11.5% in less than two weeks.

It could all change in an instant. The sides aren't terribly far apart. That makes trading in this environment deeply risky. If nothing changes, the latest trends will continue, but the further markets fall, the large the risk of a headline-driven reversal.

Three Realities

Three facts that are troubling in the short term: 1) Despite Trump's tweeting his willingness to strike a deal, the United States has not yet scheduled a return visit. Treasury Secretary Mnuchin said a meeting is likely but there's not a timetable yet; 2) Trump stating he will meet Xi at the G20 is positive but the summit isn't until June 26 and that would leave businesses (and markets) to manage a month with the tariffs in place and 3) tariffs on the final $300 billion of goods would be scheduled for June 24.Trade will continue to dominate markets this week but economic data is worth watching.

We continue to watch the 11820 level on the DAX, the 25,400 level on the Dow Jones Index.

Ashraf Laidi recently talked with Dan Collins at the TradersEXPO New York

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