It’s a question of when and not if the market rhetoric will turn again

Trump finally decided to tone down his flagrant approach in the tariffs war with his comments from yesterday. But were they as optimistic as one can really take them to be?

The positive thing is that he reaffirmed that the US is “going to be very nice to China”. Adding to that is he’s not going to “play hardball with president Xi” and that tariffs “will come down substantially”. On tariff levels, it’s a low benchmark considering we’re at over 100% now and essentially trade is stifled between the two countries. But hey, at least Trump is trying to talk about progress.

However, his choice of words on how that might come about is perhaps not too propitious I would say.

He said that “ultimately, they (China) will have to make a deal” and that he thinks “they’ll (China) want to be a part of the US”. And that if no deal is struck, then he will just “set a deal” and “set a number” on tariffs.

His comments reaffirm that both sides have yet to speak officially on the matter and works an angle that China will have to be the first to communicate. But judging by the stance that Beijing has been going with, I highly doubt that is going to be the case. Not least when Trump sneakily inserted a jab in his remarks that “we just destroyed China”. 😮

For now, we’ll have to wait on Beijing’s response later in the day. However, it feels like Trump has this idea built up in his head and China continues to just sit and wait to see what comes next.

Going back to Trump’s remarks, the issue in all of this isn’t so much about what he is saying. It’s more so about how this is all coming about. There’s so much flip-flopping and back-and-forth that it makes the situation so hard to read and gather much, if any confidence at all.

And that’s the problem. There is just no consistency or any coherence in terms of his policy approach. That is the major issue that is plaguing US assets at the moment. It’s a credibility issue.

There is a tentative bounce since overnight trading but can it really be classified as the turning point? To answer that is basically a test of confidence on whether or not Trump will make a U-turn again on his remarks yesterday. And at this point, nobody will be surprised if that happens.

And not just the one on trade/tariffs. With the Fed set to keep rates unchanged in two weeks’ time, how will Trump respond to that? For some context, markets are pricing in a ~92% probability of the Fed leaving rates as they are on 7 May. Will he start bashing at Powell again? Will he suddenly threaten Powell’s job security as he did before? That’s a conceivable notion given his track record.

The bottom line is that as long as Trump’s erratic nature continues to dominate the market landscape, it’s really not a question of if there is going to be another shift in the tides. It’s more so a question of when.

I won’t rule out that any bounce or recovery in markets can look or feel bigly in times like these. After all, there is also money to be made in bear market rallies if you time it right: