The Trade War May Have Just Gone Off the Rails

Futures were up this morning on trade war optimism.  

All after Chinese state-owned Xinhua reported that Vice Premier Lie He spoke with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, describing the conversation as constructive.  

“Optimism that a partial trade deal can be done largely explains the rally in U.S. equities that took the Dow Jones to 28,000 for the first-time last week,” says Jasper Lawler, head of research at London Capital Group, as quoted by MarketWatch.

Unfortunately, there’s now a good deal of confusion.

According to CNBC’s Eunice Moon, “Mood in Beijing about trade deal is pessimistic, government source tells me.  China troubled after Trump said no tariff rollback. (China thought both had agreed in principle.) Strategy now to talk but wait due to impeachment, US election.  Also prioritize China economic support.”

Just last week, President Trump said he had not agreed to eliminate tariffs on Chinese goods, which is confusing after China’s Commerce Secretary Gao Feng said the two sides had reached an agreement on rolling back tariffs.

“They’d like to have a rollback. I haven’t agreed to anything,” Trump has said, as quoted by CNBC.  “China would like to get somewhat of a rollback, not a complete rollback because they know I won’t do it.”  

Meanwhile, Gao has noted, “Over the past two weeks, the two negotiating teams had serious and constructive discussions and agreed to remove the additional duties imposed on each other’s products in different phases after they make progress in reaching a deal.”

In short, folks are confused.  

From here, the situation could detonate again, destroying the rally to all-time highs.