The big news as we get into European trading is none other than more Trump headlines. This time around, it looks like he has toned down his brazen stance on trade a little but definitely more so when it comes to firing Fed chair Powell. Let’s take a look at his full remarks on both matters.
On China, he said that:
“I’m not going to mention Covid. I’m not gonna say “Oh, I’m gonna play hardball with China, I’m gonna play hardball with you president Xi”. No. We’re going to be very nice. They’re going to be very nice. And we’ll see what happens. But ultimately, they have to make a deal because otherwise they’re not going to be able to deal in the US. And we want them involved but they and other countries will have to make a deal.
And if they don’t make a deal, we’ll set the deal. We’re going to be setting the deal and it will be a fair deal for everybody and I think it’s a process that is going to go pretty quickly. We’ve spoken to many, many countries and we’re getting their views on things. And you know, there are a lot of things. They have VAT taxes and everything you can have. Don’t forget as an example that the EU was set up to take advantage of the US. They’ve done that but they’re not doing that anymore.”
“145% (tariffs) is very high and it won’t be that high. It got up to there when we were talking about fentanyl and various elements built it up to 145% but no, it won’t be anywhere near that high. It will come down substantially but it won’t be zero. It used to be zero.
We just destroyed China who is taking us for a ride and it’s not gonna happen. We’re going to be very good to China. I have a great relationship with president Xi. I think we’re gonna live together very happily and ideally work together. I think it’s going to work out very well. But no, it’s not going to be 145%. They will not be anywhere near that number.”
“My relationship with president Xi is great. It’s been great for a long time. We have a very good relationship. And I think we’ll make a deal with China. If we don’t make a deal, we’ll set it. We’ll just set the number. I think they’ll want to be a part of the US. We’re doing great. This is the Golden Age. There will never be a time like this in my opinion. And China wants to be a part of that too.”
The final passage was what he answered on whether or not he had spoken to Xi. That’s definitely a no and confirms that both sides are still unwilling to pick up the phone.
As much as it is optimistic to see him answer deliver a more composed response, there’s always two sides to the coin in reading into these situations. We’ve seen many a time before how Trump says one thing but the direct counterpart says another. And China is no stranger to that sort of rhetoric.
In any case, the status quo remains rather unwelcome the longer it stays. At these tariff levels, it has definitely stifled US-China trade until further notice. And something’s gotta give before the hard data really shows up and starts to bite at the hopeful optimism.
The next part in all this now will be to watch for the Chinese response later today.
As for Fed chair Powell, Trump said that:
“The Fed should lower the rates. We think that it’s a perfect time to lower rates and would like to see our Chairman be early or on time as opposed to late. Late is not good.
(Are you going to fire Mr. Powell?)
I don’t want to talk about that. Because I have no intention of firing him.
(What about reports on you studying the idea of possibly removing Powell? Do you have any plans on doing that?)
None whatsoever. Never did. The press runs away with things. I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates. It’s the perfect time to lower interest rates. If he doesn’t, is it the end? No, it’s not. But it would be good timing and it should’ve taken place earlier. But no, I have no intention to fire him.”
As a reminder, Trump said last week that Powell’s “termination can’t come soon enough”. Geez.
Whatever the case is, the erratic stance is playing in favour of US assets this time around and kept the bounce from early yesterday.
30-year yields are now down to 4.80% and equity futures are surging as a result, with S&P 500 futures up another 1.5% after the 2.5% gains overnight.
As for the dollar, it is also seen rebounding with USD/JPY back up to 141.94 currently with the high earlier clipping above the 143.00 mark. For some context, the pair tested the 140.00 mark in trading yesterday. Meanwhile, EUR/USD backs away from 1.1500 to hold at 1.1385 ahead of European trading later.
It’s a bit of a respite at least, until we get back up on the merry-go-round again.
This article was written by Justin Low at www.forexlive.com.