After suffering the vapors last week over the Trump tariffs and China’s bluster that it didn’t fear a trade war, investors had time to digest things over the weekend and came out of it with a more positive outlook.
Overlooked in the trade war hysteria that saw the DOW plunge 1,100 points in two days, the Trump Administration achieved real victory in trade talks with South Korea and hinted at positive movement with the Chinese. Investor’s Business Daily reports that even global corporations Boeing and Caterpillar that could be harmed by a trade war saw their shares rebound nicely on Monday, as the exchanges recovered much of their losses.
As we speculated last week, the tariffs may be Trump’s “Art of the Deal” strategy to wrangle the Chinese into trade table concessions. IBD cites Ray Dalio, co-chief investment officer with Bridgewater and Associates:
“If this is the negotiating that I expect, the next move will be toward some trade agreements that will look like victories for Trump, so tensions will subside and the markets will like it,” Dalio wrote on LinkedIn. “That’s the most likely scenario. I would consider that scenario to be broken if there is any new worsening in trade relations with China from here. We will find out soon enough.”
South Korea agreed to some important concessions going both directions in auto sales with the U.S., and China announced changes to policies that they say will protect intellectual property and level the playing field between foreign and domestic companies.
Increasingly the rhetoric between Trump and China appears to be posturing while the actual trade measures each have brandished now look less menacing. Trump also backed away from demand that 50 percent of the parts in autos imported to the U.S. from Canada and Mexico be made in America.
Yet Erik Nielsen, chief economist for UniCredit Group still urges caution. “China has a bit of a record of pledging changes at politically convenient times, while plowing ahead at its predetermined pace,” he said.
Think you have the President figured out?
The adversarial media in the U.S. take Trump purely at face value, assuming that his awkward and sometimes uncomfortable rhetoric are all there is to him. It seems that the possibility he may be presenting negotiating theater has never occurred to them; that he might be threatening the worst in order to wring concessions from the negotiator across the table.
Hopefully investors will begin to understand this, and not get rattled every time Trump takes an extreme position.
Remember, he’s a deal maker.
Have we topped out this market?
On the March 24th edition of Jerry Tuma’s Smart Money Radio, Jerry presents the case that the market may be beginning a choppy sideways movement characteristic of market tops. What happens next? Listen to Smart Money Radio to find out.
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