Trade War, Part 2

Yesterday President Trump tweeted mad hate against Europe, promising tariffs.

The European economy is structurally weak & they can’t afford to exit negative rates & quantitative easing.

Across Europe German manufacturers are already calling the shots trying to minimize the fall out from Brexit.

Now would be an inopportune time for curtailing the export-led engine of Europe.

Does Trump have a deal ready with China, so he can afford to beat up on another player?

Within the four weeks — or maybe less, maybe more, whatever it takes — something very monumental could be announced,” Trump told reporters in the Oval Office ahead of his meeting with Liu.

“A lot of the most difficult points, points that we didn’t think we could ever do, or we wouldn’t agree to on both sides have been agreed to,” the U.S. president said. “We have some ways to go, and I think we have a very good chance of getting there.

Nikkei Asian Review

Given the impact, not a minor issue.

or is he trying to redirect attention away from Boeing’s recent engineering disasters with their MAX plans that had literally zero redundancy on vital systems?

That (non)safety performance appeared to have landed them precisely zero sales last month.

The other option, of course, is it could be both

If the HKD is strengthening it could presage a trade deal with China where China makes additional purchase commitments along with a deal to slowly increase the value of the Yuan against the Dollar to end the trade war.

IF that is correct, there is likely to be a significant repricing of risk assets upward. If it is not, look out below.

I have traditionally liked stocks related to web stuff (as I understand the markets well) or sort of boring old line beaten down value plays or the intersection of both (like eBay & Zillow in Q4 last year), but it might make sense to buy a bit of higher beta plays betting on at short term run.

There might also be some upside in heavily beaten down near-commodity good branded plays with global supply chains. Newell Brands (NWL) could run, given it is off over 75% from where it was in early 2018. Tupperware (TUP) has seen a similar cratering in recent years, going from a 2016 high of over $95 to now trading below $27. If these sorts of stocks make even a 50% retracement of that slide you are talking a more than doubling in share price. Seagate (STX) has recovered about 40% of its decline last year while Western Digital (WDC) has only recovered about 25% off a much steeper decline.

Update: the trade war with China might be settled (or at least partially settled).

Trump keeps hammering away on Europe

Before he took the fight hard to China he renegotiated NAFTA with Canada & Mexico to prevent dumping in an adjacent economy within a free trade zone.

I don’t think he would keep hinting about tariffs on Europe UNLESS the China trade deal was a done deal with only formalities remaining.

One of the sticking points with China was the post-deal enforcement mechanism, which Treasury Secretary Mnuchin claims is essentially sorted:

We’ve pretty much agreed on an enforcement mechanism. We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters. This is something both sides are taking very seriously,” Mnuchin told Sara Eisen on CNBC’s The Exchange on Wednesday. “We are really focused on the execution of the documents.” …
“We are hopeful we can do this quickly, but we are not going to set an arbitrary deadline,” Mnuchin said. “If we can complete this agreement, this will be the most significant changes to the economic relationship between the U.S. and china in really the last 40 years. The opening up of the Chinese economy will be a tremendous opportunities with structural changes that will benefit U.S. workers and U.S. companies.”

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