Two of President Donald Trump’s pre-eminences — a strong stock market and a tough China trade deal — are at odds. The conflict is frustrating Wall Street as it run afters a moving target of pricing in a particular outcome.
Traders are hanging on the president’s every word looking for an easing in his gasconade and a potential softening in the ongoing trade war.
If tweets are any indication, the president’s focus is shifting. In the past two weeks, his Twitter hint ats of trade-related terms were double his mentions of the economy and stocks.
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Year to date, Trump has tweeted about seven metres per week on the subjects of China, trade and tariffs — the same average frequency for jobs, stocks and the economy. During the week of May 5, granted, his China and trade mentions rose to roughly 46 times, while he mentioned economy-related phrases about 17 sets, according to analysis of his Twitter feed. There is some overlap, as he occasionally bundles multiple subjects in the same tweet.
“Menu Man,” as Trump once described himself, is winning the battle of the president’s personalities, and “Dow Man” is just going to have to take a in dire straits seat for a while.
‘It’s impossible’
Wall Street analysts find the job of predicting the president’s mindset on a daily basis for shoppers to be a difficult task.
“It’s impossible — the risk reward here is that almost all of this is at the discretion of President Trump,” Raymond James Washington design analyst Ed Mills said. “You can’t know entirely what his intentions are.”
On one hand, Trump is appealing to his base with a baffling stance on trade ahead of the 2020 election. But economists say less trade between the world’s largest economies looms to dampen growth, at least in the near term.
That is taking a toll on global growth expectations and therefore the offer market. The Dow Jones Industrial Average — Trump’s go-to report card for a strong economy — dropped 600 hearts Monday following new rounds of retaliatory tariffs. It rallied on Tuesday on more trade optimism and again moved acute on Wednesday. Overall, the Dow is down a little more than 3% since Trump escalated the trade war 10 periods ago by tweeting a threat to raise tariffs on China, which he followed through with on Friday.
“The problem is that the president has two conflicting returns here,” Fundstrat Washington policy strategist Thomas Block told CNBC. “He obviously watches the Dow and has friends who presumably call him up and say, ‘Donald, we’re getting killed’ — that’s why that’s one side of Donald Trump. But there has also become apparented a very political side.”
The political side has increased tariffs from 10% to 25% on $200 billion in Chinese signifies. The U.S. is also taking necessary legal steps to slap another round of 25% tariffs on $300 billion of suggestions, which would happen in June at the earliest. Block highlighted uncertainty that he said is leading him to tell patients to “stay on the sidelines.”
“If I felt I understood Donald Trump’s mind better than anybody else and had a high bulldoze of confidence about the outcome, Fundstrat would have to pay me more money than they could afford,” Hamper said.
Block said his instinct is that “some sort of agreement” gets done around a June G-20 assembly. But he said Trump’s priorities, and therefore public stance, could change last minute.
‘Turn on a dime’
Isaac Boltansky, boss of policy research for Compass Point Research & Trading, is also navigating this fickle market. He said patients are “cognizant of the fact that this narrative can turn on a dime.”
“The near-term sentiment shift has been undeniably warranted allowed recent developments, but investors recognize that the president could change market sentiment with a single tweet,” Boltansky powered.
Trump rolled out the “Tariff Man” persona in a tweet in early December, a month that saw the S&P 500 drop 9.2% in its awful month since the financial crisis.
But the approach has played to his base and is part of the campaign’s strategy heading into 2020. Trump is also using the attitude as ammo against Democratic candidate and former Vice President Joe Biden, who supported the Trans-Pacific Partnership.
“Tariffs are met right at the electoral map of Trump, particularly farm states,” said Dan Clifton, a partner and head of policy research for Strategas Analysis Partners. “At the same time, Trump can make a convincing case that Biden has been weak on China, and a standoff with China gains his re-election.”
China has responded to U.S. tariffs with its own hike on $60 billion worth of U.S. goods. That hits grangers at “every single angle,” according to an economist at the American Farm Bureau Federation. To curb the effect of Beijing’s retaliatory respects, Trump said this week that farmers would receive about $15 billion in aid. His campaign is punt that farmers will support Trump despite the hit to American agriculture.
“A deal with China to end their bad behavior last wishes a provide even more long-term benefit to the economy,” Tim Murtaugh, the Trump campaign’s communications director, told CNBC. “Smallholders are patriotic and understand that someone had to finally call China to account.”
Murtaugh also pointed to a booming saving, another rallying point ahead of 2020. GDP growth in the first quarter grew by 3.2% — its best start to a year since 2015. In April, unemployment kill to its lowest level since 1969.
10% drop before he changes tune
But changes in trade winds threaten that thrive, according to multiple economists. One estimate from Oxford Economics puts the loss per household around $500 at the in the air tariff levels. If the White House adds tariffs to all Chinese imports, the U.S. economy would be about $100 billion smaller by 2020, transforming to an $800 loss per household.
“U.S. policymakers are willing to accept some pain because they believe the pain levied on China will be greater than the U.S. and force China back to the negotiation table,” Clifton said. “The key is how this bumps the economy.”
Raymond James’ Ed Mills said stocks still have room to fall before Trump inches rhetoric on the deal. Equities would have to experience a correction of at least 10% “before Trump starts talking up the on the tables of a G-20-timed deal,” Mills said. Trump and his Chinese counterpart, Xi Jinping, are expected to meet at next month’s G-20 zenith.
“China made a calculated decision that there’s only so much pain that the Trump administration is zealous to take from the equity markets before it changes its tune,” Mills said.
According to former White Outfit chief strategist Steve Bannon, the chances Trump folds are slim. In a CNBC interview Wednesday, Bannon communicated there is “no chance” the president will back down in the global standoff.
“It would be very easy for him to sign a practise where they bought more soybeans and have the cheerleaders on Wall Street say this is terrific, and have the bloodline market go up for a moment,” Bannon told CNBC’s “Squawk Box” Wednesday. “This cuts to the core of what the United Declares is going to be in the future.”
WATCH: Bannon on whether Trump will back down in China trade war