Our Experts Comment the Times Series

See All the Comments

‘Chairman Xi’

23 August 2019 by jbchevrel

APAC risk was little moved, and the Asian session was very quiet, ahead of Jackson Hole. $CNY creeping higher toward 7.10 was already not a sign of goodwill from China. State banks reportedly not in the market, or some having targets at 7.10+. We know what happened next. *CHINA TO LEVY RETALIATORY TARIFFS ON ANOTHER $75B OF U.S. GOODS hit the wires at about 1 PM BST. CDX IG widened +2bp and Main +1.5bp. The move reversed on Powell, who sounded pretty neutral to me, contrary to what the financial press wrote. He did not pronounce ‘mid-cycle’ and didn’t push back against short end pricing, but basically said the Fed’s path would depend on future developments. BoE style. Then Trump twitted the Fed was clueless because they had no idea what he was going to announce. The market didn’t sell off on that, although it sounded like more negative on trade front. Then came *TRUMP: I WILL RESPOND TO NEW CHINA TARIFFS FRIDAY AFTERNOON just before 4 PM BST. CDX IG widened back 4.5bp before stabilizing just below 58. Only high betas, autos & energy single names markedly underperformed the CDX, given China will hit US cars with 25% tariffs from December 15th and WTI slid -3.5% on general risk-off and as China announced tariffs on U.S. crude. China’s stance has undoubtedly toughened. Beyond today’s announcements, the rhetoric is much harder on Chinese side. The Chinese state-controlled Global Times’ chief editor Hu Xijin wrote ‘Without China's market of 1.4b people, US farm goods will have nowhere to go, farm land being abandoned, farmers going bankrupt. US energy products will also lose an infinite market. Chinese auto market is already bigger than US'...all of this don't have to happen. I hate trade war.’ Violent. As I write, President Trump hasn’t formally responded to China yet, but given the tone and the accuracy of his previous tweets (‘Chairman Xi’ is now part of my top 5), I’d expect a choppy U.S. end of day.