This Morning’s Log Entry

This week’s important data
releases (construction spending, ISM Services, new home sales, Beige Book,
jobs, etc.), barring any huge surprise in the jobs number, will be overshadowed
by trade headlines. Domestic politics will continue its steady stream of sound
bites that have,
thus far, been
ignored by markets. Asian markets closed higher, although well off of their
overnight highs
, U.S. equity futures are set to open higher.

According to last night’s Wall
Street Journal, a China trade deal is in near-term reach. While that is
absolutely in both sides immediate best interest, there remains real risk that
the most penetrating demands by the U.S. will not be easily-stomached by China.
Reducing or eliminating tariffs and foreign investment barriers are easy, and, actually,
consistent with China’s stated goals pre-trade war. I even think the IP theft
and forced tech transfer issues are largely resolvable as well. However, the
idea that the U.S. will be allowed to monitor, critique and approve/disapprove
of China’s monetary policy going forward is one I don’t see Xi submitting to.
Other structural change the U.S. is looking for – such as a curtailing of China’s
use of state subsidies – has to feel overly intrusive as well.
Then of course there are the
at-home political realities for Xi. He’ll stop somewhere short of giving, or appearing
as if he’s giving the farm to the U.S.. Instead, he’s hoping that supporting
U.S. farmers – hugely important to Trump – will be enough to get a deal done
while maintaining sovereignty over monetary policy and economic management going
Odds clearly favor a deal, but in my view only one that won’t require such
relinquishment on the part of China.


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