Fabulous Friday – No Worries Into the Weekend?

Trade discussions collapsed in May and now it's July and we're only just getting back to the table.

2,999.91!

That's where the S&P 500 closed yesterday and, this morning, they've pumped it up to 3,010 because "THEY" didn't do all this work just to fall short of S&P 3,000.  After all, they already made the hats…  They were wearing Dow 14,000 hats back in July of 2007 – those were replaced by Dow 8,000 hats a year later so let's not get too excited by the fashion accessories worn by the MSM cheerleaders.

On Monday, Japan is supposed to start restricting key electronic components from being shipped to South Korea and this may become the most damaging battle in the Global Trade War so far as it will screw up a large amount of electronics manufacturing world-wide and the stuff they are making now is what's supposed to be going on the shelves for Christmas – so the repercussions could flow out far and wide.  SoKo's Samsung and SK Hynix are the World's two largest chip-makers – key suppliers to Apple and dozens of other companies.  

Even worse is that this is a preview of the kind of pressure China can exert on the United States by restricting the trade in Rare Earth materials – something we were worried about a month ago but people seem to have already forgotten all about.  Though trade talks resume next week, China has put together a new trade team packed with hard-liners and Larry Kudlow stated that there is no timeline for an agreement and "He also hoped that China would not seek to "wait out" the Trump administration."  So the White House is concerned that this could drag on for 18 more months!

Trade discussions collapsed in May and now it's July and we're only just getting back to the table.  China has flatly stated they won't capitulate to Trump's demands and threatened to take action using Rare Earth Exports and, unlike Trump, China is not knows for making empty threats while posturing for their base.  Trump, meanwhile, is still threatening to add another $300Bn worth of tariffs if China doesn't play ball with him.

As you can see from the graphic (which is already eclipsed), the indexes are up about 10% since the tariffs were announced 17 months ago so the Administration doesn't feel any particular pressure to give up on their demands but, as China's foreign ministry spokesman Geng Shuang noted recently "As for the talk that China wants to reach a deal more than the U.S., I certainly have no idea where this talk comes from."  So if two sides both say they are not anxious to make a deal – what's the actual chance of making a deal any time soon?

We remain cautious and well-hedged into the weekend.

Have a good one, 

  • Phil
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