Thursday, 6 April 2017
Trump-Xi meeting to set the tone in financial markets
So here we are. Today it’s a big day for world markets as US President Donald Trump and his Chinese counterpart Xi Jinping kick off a two-day meeting in Florida.
Don’t be confused by the amenities offered at Trump’s Mar-a-lago resort, the US-China summit is going to be tough from every single angle. And… It’s not us who say so, ask Trump!
“The meeting with China will be a very difficult one in that we can no longer have massive trade deficits and job losses, [...] American companies must be prepared to look at other alternatives.” Trump tweeted by the end of last week.
Investors understand that the new administration and China haven’t started their relations with the right foot. Donald Trump has been blaming China of stealing American jobs and controlling the yuan in order to make US producers less competitive in global trade.
"We can't continue to allow China to rape our country, and that's what they're doing, [...] We're going to turn it around. And we have the cards, don't forget it. We're like the piggy bank that's being robbed. We have the cards. We have a lot of power with China," said Trump at a campaign rally in May 2016.
These kind of comments are exactly why investors are seeing the meeting as a possible turnpoint for international relations with Asia’s biggest trade player.
While Trump continues to get comfy at the White House, markets participants are increasingly losing confidence in Trump’s ability to push economic promises in Congress, especially following the decision to pull the American Health Care Act due to lack of support.
International trade is a different thing. Relations with China could actually be seen as an opportunity for the Trump government to make amends for the healthcare failure and show some real progress regarding one of the US top priorities right now.
So… What should we expect from this encounter?
While it is uncertain (as usual with Trump) how the meeting will move forward, analysts believe the US leader is expected to soften its rhetoric and look for a common agreement that will stabilize relations between both nations. This scenario will possibly play bullish in equity markets, although Trump’s local support might be on the line.