OK, the US -China not being not having a date-certain schedule for the September trade talks yet, now is a good time for you too to start thinking about betting on a trade deal, as it has begun.
“I am still reasonably optimistic,” David Woo, head of global rates and foreign exchange at Bank of America, said in a TV interview.
Mr. Woo’ central scenario is that President Trump will seek an agreement with China to avoid an economic downturn in the run-up to the November 2020 election.
In currencies, that means buying the Australian dollar (AUD) and SKorean won (WON), which have been hit by the trade war, and selling JPY, Mr. Woo said. He also advised positioning for higher yields in the US Treasury market, which has increasingly been pricing in a recession.
“The irony is the more people think a recession is coming, OK guess what, the more likely it is that Trump is going to want to do a deal with China” to lift his reelection chances, he said.
Mr. Woo has analyzed markets for 20 yrs and previously worked at the International Monetary Fund (IMF), drew confidence from history. Noting that just 1 time in the last 50 yrs did a President suffer a recession in the final year of his 1st term.
That exception was Jimmy Carter, who lost his reelection bid thanks in part to the recession that hit in Y 1980. That downturn was out of his control, due to a crisis in Iran that sent Crude Oil prices soaring.
“I am going to assume the same logic applies to President Trump” with regard to going out of his way to avert a recession, Mr. Woo said. That means there’s an “overwhelming incentive” for a China trade deal and the bets are on that outcome.
With the Aussie (AUD) at a “very depressed mark,” it is set to become one of the best performers once an agreement comes about, stay tuned…