Fund Mgr: Trump’s Asian Bluff May Have Just Been Called
Intro: Forget Stocks, Trump’s Bluff May Have Just Been Called
Authored by Mavs for Goldfix ZH Edit [Intro, Subtitles added]
Last week saw stocks rally, bonds stabilize, and Gold drop significantly from fresh all time highs. These events gave reason for players to ask, is this the beginning of the trade war’s end? As we shall see, the reality is far from that. The key to truly comprehending Asian trade negotiation progress is in watching how US counter-party nations are acting.
Good Week for Trump: Stocks, Bonds and DX up; Gold Down...
Worth noting is that Trump’s (by now) well known approach of starting as bad cap and ending as good cop may have worked on Canada and Mexico as detailed in this space before; But for Japan and Korea, the cultural and more importantly geo-economic risks make that aggressive negotiation approach less likely to work in Asia. Worse, Trump’s popularity is lower now than when he debated US North American allies.
Whereas Canada and Mexico are stuck with the US geo-economically, Japan and South Korea have to live with China as their neighbor. As such, while Trump’s Stick/Carrot approach may work, the “stick” part may have to be dialed down very soon. China knows that slow play is rewarding play for their interests now. They know that as Trump’s popularity wanes, so will GOP party support, and with it his ability to project negotiating strength. The clock is being run out now.
We remain H1 buyers of dips in bonds, international & gold, sellers of SPX/US$ rallies…
With all that in mind, here are some fresh insights potentially answering the question as to who will call Trump’s bluff? and if their pushback will work.
Trade War Updates: Cutting Through the BS
Risk assets seem to have to love the mainstream fake news to find a bid.
Let’s begin with a savvy [and revealing] quote from a high Asian official: Trump began his negotiations by treating us worse than dogs, it didn’t work, so he tried again by treating us slightly better than dogs (lower tariffs, softer tones). This is downright naivete. Trump’s random compromises are only as good as a sub-30 VIX.1
China’s MOF spokesperson called out the fake news the other day by confirming NO contact at any level with Washington. Similarly, Scott Bessent (as a great PR) had to act the same way claiming the negotiations with S. Korea also progressed nicely. Nobody bothers calling him a liar because indeed they’ve been talking on lower levels. By now a lot of intelligent market participants have figured out a way to tell if Trump is telling the truth, while accustomed to his bombastic style, they simply have look at the actions of his counterparties. This isn’t even ancient wisdom.
[Trump’s need for a win meets Asian resistance]
The leaders of most countries are not idiots by default, though they may well appear so if one looks at them through a specific lens of hegemony. Let me outline the factual nuances here so we all get a bit closer to truth. Japan is going to send the same person, Ryosei Akazawa, to Washington on 4/30 for the 2nd round, who completed a great reconnaissance mission last time. This, will all due respect, is a mid-level conversation – indicating there is basically no material progress on anything. Meanwhile, the Koreans displayed patience and didn’t specify a date and a strong willingness to negotiate. Trump desperately needs his first win on the Great Trade War, making an example out of China or Japan, the 2nd and 3rd largest economies in the world, will easily make other countries fold like a cheap laundry.
Continues here
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