Submitted by Michael Every of Rabobank
The 'Clause is Cause' Clause
As we had flagged repeatedly in recent days, US-China relations have suddenly deteriorated. US President Trump claims to have evidence that Covid-19 started in the Wuhan Institute of Virology. Moreover, he is allegedly considering an executive order to prevent an initial USD50bn of government retirement savings funds held by the Thrift Savings Plan being transferred to Chinese capital markets in line with the increased weighting China now has in the MSCI All Country World Index - something several members of Congress have been calling for. Other reports have it that trade advisor Navarro is pushing hard to onshore US manufacturing of key health goods as soon as possible by executive order - and is seeing ‘wait-and-see’ push-back from Treasury Secretary Steven Mnu-China. But recall this Thrift Savings Plan tug-of-war was being won by the doves until yesterday.
Meanwhile, the word “reparations” is actually being bandied about by some China hawks in DC, with one story even suggesting there were even White House plans to default on US debt to China as compensation. Larry Kudlow had to be wheeled out yesterday to deny that the US to do so. That’s like being in a dispute with your neighbour over the line of a fence and them calmly telling you “I can assure you that we don’t plan to burn your house down over this.” Is one reassured by that kind of thing or not? The hows and whys and ifs and maybes of what was once a crackpot leftfield is now out there actually being discussed on trading floors.
Beijing, and much of Asia, is out...