Via Global Macro Monitor,

Markets are all lathered up over a China Trade deal?  WTF?

Alternatively, is the market higher because of just the cessation of hostility and talk the trade war is now  “on hold.”

Whatever the case, here is the exchange with Larry Kudlow and George Stephanopoulos on ABC yesterday afternoon.

George Stephanoplous:  "Just to be clear, it there an agreement or not?"

Larry Kudlow:  "There is no agreement for a deal. We never anticipated one. There’s a communique between the two great countries.  That’s all. "

– This Week With George Stephanopoulos,  May 20

Couldn’t be more clear, and a communique is worth nothing more than the paper it is written on.

Nevertheless, the efficacy of any trade agreement with China, if there is one, will be judged through the political lens based on did it protect and create more jobs for President Trump’s base?  Selling more Boeing aircraft to China will not move the political needle in his direction, in our opinion.

President Trump will ultimately realize this and given his proclivity to mood swings and his own form of recency bias – those who speak  to him last – we wouldn’t be making  bets on this news for more a trade or a days or two.  Uncertainty still reigns.

The Growing Perception Trump Is A Paper Tiger

Furthermore,  the president will not like the headlines coming out that he is being played by China and North Korea because, among other things, he is putting a North Korea deal that will win him a Nobel Prize above all else, and that he losing the trade war.

This only adds to the perception that America is perceived as a Paper Tiger in Asia.   We have pointed this out in several posts.  See here and here.

It may cause some erratic tweets and destabilizing behaviour going forward, raising the event risk of unexpected (though we expect) tape bombs.

Critics fear Trump is ceding too much to China on trade

President Trump’s tough-guy persona is taking a beating from China, judging from the reaction of some of his allies on Capitol Hill and in the trenches of the trade wars.

The former business executive, who prides himself on his negotiating savvy, is facing criticism for bending to the Chinese government on two key trade disputes in the space of a week, alarming longtime supporters who had welcomed his call for a more confrontational approach to Beijing. 

– Washington Post, May 20