Why we think there will be no US-China top level talks in November G20 to resolve the on-going Trade

Chinese and U.S. negotiators are reportedly working on a plan to hold talks to end a trade dispute that would result in meetings between President Donald Trump and Chinese leader Xi Jinping at a summit in November, according to Dow Jones on 17/8/18.

• A nine-member delegation from Beijing, led by Vice Commerce Minister Wang Shouwen, will hold meetings with U.S. officials led by the Treasury undersecretary, David Malpass, on Aug. 22 and Aug. 23, the report said, citing officials from both countries.

The Dow Jones news wire reported the above, resulting on a slight risk on mood to bring both the Dow and S&P500 to finish higher for the week.

Having been commenting on the US-China trade war and politics since it broke out early this year, and being persistent on how the both nations will not give way to each other, we have been proven right given there was not been any improvement on the trade war situation since Q2 2018.

We now take a look at the on going political play and conclude from the reasons below why we think a resolution is not on the horizon given how much the US will benefit from the current policies.

It is all about targeting the Made in China 2025 plan.

We sense that the reason Trump is waging the Trade War against China is mainly to target the growing presence of Chinese good quality exports which would be harmful to the US economy on the longer run, especially on the fronts of Technology.

Trump have been successful in masking the above fact by putting the media focus on closing of the US-China trade deficit, as he knows well that stopping China growth at the current juncture would be essential to put a stop for the Made in China 2025 goal.

As below is a chart of the Dow Jones Industrial Average vs Shanghai Composite Index, which clearly shows the winner of the on-going trade war.

The Chinese have been anxious to stop the negative effects of the tariffs imposed upon them by the USA, with their willingness to weaken the Chinese Yuan to offset some of the impact. We have yet to see much outflows from China, less falling commodity prices and a weak stock market.

Chinese economic data have in recent months shown large signs of slowing down, which have also brought about a general slowdown in Asia.

We here by remain firm on our view that the USA will not bent down to China in anyway to resolve this trade war, as an effort to bring down the world's second largest economy so that the USA can remain the global power in for the next few decades.

There is absolute no incentive for Trump to stop on his tracks, as any slow down on pressuring China would only be counterproductive to the current US action plan by Trump and Co.

We here by put it to our readers that any bounce next week would be an excellent opportunity to sell into the Asian markets, which we expect to see a slight bounce before the market realizes that the damage to China is already done and the downward move on the Chinese economy while partly is due to the on going trade war, much is due to domestic weakness given the slowdown in credit on the recent P2P lending platform bust, which had the PBOC lowering borrowing rates yet again in a bid to save the economy as shown below for the Chinese 1 year benchmark falling.

We expect continued outflows from China on the ongoing rate divergence, while pace of outflows is expected to pick up drastically when the 1 Year Chinese Yield falls below that of the USA 1 year benchmark.

Conclusion

Falling rates in China have failed to save the Shanghai Composite Index from falling to year lows, which proves a dangerous fact that the Chinese authorities have a more structural issue at hand that can't be solved by just lowering interest rates.

We remain positive on our short China / Asia call, while the on-going EM Crisis which we have successfully predict in April 2018 and issued reminder warning to all readers just 3 weeks before the Turkey crisis strikes would further support our overall call for going short EM + China, Long USD/Fragile5+EM.

We continue to advise readers to sell on any bounce to reduce risky assets as the EM crisis is likely to pressure global markets on a 6 months outlook.

Good Luck Trading!

The Bad Bear

Any content on this blog should not be relied upon as advice or construed as providing recommendations of any kind.