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China Struggling to Grasp President Trump’s End Game



Note: The Mins from the May FOMC meeting showed that policymakers are comfortable with the current fed funds rate range while “a number of participants” saw a moderation in risk and uncertainties surrounding their outlooks for the year.

The Key takeaway is that the stock market has a reasonable assurance to think policy rates are going to remain quite low on a real and nominal basis. Low rates are supportive for risk assets like stocks.

Now, just 2.3 yrs after President Trump took the Oval Office China’s President Xi finds himself on the verge of a new Cold War fueled by Washington’s most ideological China hawks. And, the view that China is a strategic competitor that must be thwarted at all costs is picking up support across the US daily.

As President Trump continues to raise the stakes with threats to blacklist Huawei Technologies Co. and other companies over what the US says are rising national security risks, officials in Beijing are weighing their options to respond. They are stoking up anti-US sentiment and drawing up contingency plans to bail out Huawei, while still calling for dialogue to resolve the dispute.

The is much uncertainty over whether President Trump is just ramping up threats before ultimately reaching a deal, or if the US is moving to curb China’s rise as a global superpower. This is a question that seasoned Washington policy experts cannot answer.

Since trade talks broke down earlier this month, The Trump Administration has unleashed measures that amounts to containing China. In addition to the moves against Huawei, which could potentially curtail its ability to help nations around the globe roll out critical 5G mobile networks, the US is also considering cutting off vital American technology to 5 Chinese companies leading the world in video surveillance.

China’s response so far has been largely rhetorical.

Diplomats have blasted the US for “bullying,” and state media has called the trade dispute a “people’s war.” Anti-Americanism is rising on social media, with a viral song declaring: “If the perpetrator wants to fight, we will beat him out of his wits.”

President Xi this week issued a veiled threat when he visited a rare earths processing plant, signaling to President Trump that China may restrict sales of the elements used in everything from smartphones to electric vehicles.

China’s government is drawing up plans to bail out Huawei if necessary, and 1 possible option includes offering financial assistance to Huawei, though nothing has been decided yet.

President Trump’s moves against Huawei are part of an emerging great-power competition with China that the administration spelled out in its 2017 National Security Strategy.

The Trump Approach = economic security with national security, aka America First!

Wednesday, the major US stock market indexes came in at: DJIA -100.72 at 25776.61, NAS Comp -34.88 at 7750.82, S&P 500 -8.09 at 2856.27

Volume: Trade on the NYSE came in at 686-M/shares exchanged.

  • NAS Comp +16.8% YTD
  • S&P 500 +13.9% YTD
  • Russell 2000 +13.6% YTD
  • DJIA +10.5% YTD

HeffX-LTN’s overall technical analysis for the major US stock market indexes is Neutral to Bullish in here.

Stay tuned…

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.