Submitted by Michael Every of Rabobank
As we move into the final stretch of the second round of US-China trade talks markets are reaching fever-pitch. If they weren’t already nervous at the prospect of things going wrong the slew of weak data yesterday from the US and re: global manufacturing were a stark reminder that things are already less than rosy. US durable goods were 1.2% when 1.7% was expected; the US Markit Manufacturing PMI was 53.7 vs. 54.8; existing home sales were -1.2% not +0.2%; the Philly Fed was -4.1 not +14.0, with new orders tumbling the most since October 2008; in Europe, manufacturing is contracting with the Markit PMI at 49.2; and in Japan at 48.5. South Korea’s February 20-day exports were also –11.7% y/y and imports -17.3%. True, the services sector is still doing better than expected globally. But traditionally which sector leads and which one lags?
So understandably there is much head-scratching about just what is going on with the US and China. On one hand we have reports that SIX Memoranda of Misunderstandings are being drafted by the negotiators; and, yes, one of them is USD30bn of extra Chinese purchases of US soybeans, etc. Another is a commitment not to devalue the currency, which we shot down already this week as equally unworkable. And any commitment to structural reforms is not on the table.
Naturally, bulls have tried to seize on Trump tweets as a sign that détente looms: “I want 5G, and even 6G, technology in the United States as soon as possible. It is far more powerful, faster, and smarter than the current standard. American companies must step up their efforts, or get left behind. There is no reason that we should be lagging behind on...something that is so obviously the future. I want the United States to win through competition, not by blocking out currently more advanced technologies. We must always be the leader in everything we do, especially when it comes to the very exciting world of technology!”
6G?! Is that what the US will use in Spaaaaaaaace Foooooorce (which I will politely remind readers is still obligatory to pronounce through one’s cupped hands to get the required echo effect). With rumours of Trump meeting China’s trade chief today, does this all mean the US is not going to lock out Chinese telcos from its market and might even be about to hold hands with Huawei in a new grand deal, as some have interpreted it? And is the Huawei CFO about to be released from arrest in Canada soon, as a “Communist insider” also alleged yesterday?
Let me take a guess on the former at least: No.
As Trump was tweeting, Secretary of State Pompeo was showing the US is forcing a binary choice on its allies: use Huawei, lose the US. Pompeo stated: “If a country adopts ...