Stocks are hanging in there this morning on news that even before Trump and Xi get together on Saturday their respective post-meeting statements have already been drafted. Reports have it that the U.S. will suspend the threat of new tariffs and new talks will get immediately underway. 

Other reports, however, if accurate, suggest that the equity markets are in a most precarious position. According to said reports, Xi will present Trump with a list of demands that will put him in, to put it mildly, a difficult political position, as — to do a deal — he’d have to utterly cave on issues that he, and others in Washington, deem to be the roots of the issue.


From CNBC this morning:

KEY POINTS

Chinese President Xi Jinping will present President Trump with the terms it expects the U.S. to meet for Beijing to settle the trade war, The Wall Street Journal reports, citing Chinese officials.

• China will demand that the U.S. lift its ban on the sale of U.S. technology to Huawei Technologies, Chinese officials with knowledge of the plan told the Journal.
• China also expects the U.S. to remove all tariffs and drop efforts to get China to buy more U.S. exports.

Clearly, if the above is indeed the case, the Chinese believe that they now have the upper hand, as they’re virtually begging Trump to walk away from the meeting this Saturday. 


The best market scenario, only for the moment, would be that Trump restrains himself from immediately reacting to China’s demands and goes with paragraph one above. Longer-term, China sticking to its newly-found guns (assuming it does) means its prepared to hunker down and allow the markets, and the U.S. economy, to force Trump into submission between now and the 2020 election, or deal with a new U.S. regime thereafter. 


Speaking only in terms of the economy, and the equity market, should Trump see his way to satisfy China’s demands while getting enforceable commitments on IP theft, etc., we’ll be looking at very bullish conditions into the foreseeable future; assuming, that is, we don’t turn right around and incite a tariff war with the European Union thereafter!