The Trade War is Not a Game, it is Not Deal or No Deal

Today as President Trump was leaving the White House and headed to New York for another fundraiser he said that there are open communications between the United States and China, and that we are talking although “We are not ready to make a deal. But we’ll see what happens.”

He also discounted the importance of the next round of face-to-face negotiations which is planned begin in September. This is evident when he told reporters that “it is fine if talks scheduled for September are canceled”. The cancellation of the upcoming negotiations in September could have a profound and negative impact on the global economy in that it will increase the probability of new tariffs of 10% being imposed on the remaining $300 billion of Chinese imports. These new tariffs are set to go into effect on September 1st. His words to reporters underscored his ambivalence to a quick resolution to the trade war saying, “We'll see whether or not we keep our meeting in September. If we do, that's fine. If we don't, that's fine."

Recent actions by President Trump have created a major escalation in the trade war. It is now become a tit-for-tat war of words, and more importantly war of actions, as each side retaliates against the actions of the other side. On Monday China retaliated by canceling the planned purchase of agricultural goods imported from the United States. This occurred during the week when the United States Treasury Department designating China as a currency manipulator. This was followed by Trump announcing that the United States government will no longer have any dealings with the Chinese telecom giant Huawei.

These most recent actions have effectively ended the cease-fire that was agreed upon by President Trump and the General Secretary of the Central Committee of the Chinese Communist Party; Xi Jinping during the most recent G-20 meeting, held in Osaka Japan.

According to many new sources including the Washington Post President Trump’s recent statements and actions are in conflict with advice of his aides. According to the Washington Post “Trump is trusting his instincts and ignoring the advice of his aides regarding issues surrounding the trade conflict with the world’s second largest economy, the report said, citing five people briefed on the action.”

Although the Dow Jones Industrial Average recovered from a tremendous drop in trading today, the index still closed off by almost 100 points, this following a volatile week with extreme selling pressure due to the trade war’s lack of any potential for a quick resolution. At the same time, we have seen both gold and silver respond as both metals have moved to a six year high earlier this week. Gold futures continue to remain above $1500 per ounce, strengthening the resolve that the key psychological level of $1500 is becoming an area of strong support.

Considering that gold futures basis, the most active December contract opened at $1451 on Monday and settled today up $0.10 at $1509.60 is an indication that market participants are re-balancing their portfolios as they seek the safety found in the safe haven asset class. Based on actions taken this week by both China and the United States one thing seems clear as far as a resolution to the long and extended trade war; and that is that there is - No Deal.

Wishing you as always, good trading,