So, President Donald Trump and Chinese President Xi Jinping have agreed at the G-20 summit to delay raising tariffs for at least three months, potentially cooling the trade war between the two superpowers’ economies.
Here’s my quick take on the agreement, which sounds like what I have been describing as the “easy” deal.
— China buys things from the U.S. that it needs and may otherwise buy from us (commodities and agriculture — LNG and soybeans remain prime candidates).
— The U.S. holds off on increasing tariffs (the high tariffs have hurt the U.S. in addition to China, so it made sense to leave these lower for longer from both sides perspectives).
— China and the U.S. agree to talk more on things that matter — longer-term tariff levels, intellectual property and access to markets.
It seems like this should be good enough for markets to continue with the rally that took S&P 500 and Nasdaq up 4.9% and 5.6%, respectively, last week.
I think the outcome is marginally better than what people were pricing in and took some of the disaster scenarios off the table.
I would expect VIX to collapse now that the biggest wildcard is either off the table or at least postponed.
I continue to believe that Fed Chair Powell seemingly less dogmatically hawkish stance is a big driver that will also help provide a tailwind for risk, along with technical and strong seasonality.
I have to admit that corporate credit was weak on Friday — from high yield to investment grade — which will need to reverse to get any real impetus to a post Trump/Xi rally.
I don’t think the “risk on” trade will be as strong as I would like, but it should be tradeable.