It seems the machines never sleep.
Before China’s Xi had even uttered a word – in war or peace – Nasdaq futures were ramping up 1% from the cash close and the S&P and Dow following… And once it was clear that Xi was not going to drop another trade war tape bomb, futures extended gains to the highs of the day session.
What futures loved was the series of traditionally hollow promises from Xi including:
Then there were the ideological vows:
- China reform and opening will definitely succeed, world should push for free trade
- Cold war mentality is out of place, its a zero sum game, isolationism will hit walls
- Urges dialog as only way to resolve disputes
- Says states must refrain from seeking dominance
- Need to uphold multilateral trading system
Incidentally, many if not all of these promises had been made previously, most extensively during last year’s Party Congress. In the meantime, the only real change was Xi upgrading himself from mere president and crowning himself emperor for life.
Never one to dig too deep between the lines, algos loved the speech and the result has been a vertical lift in risk-assets:
Now where have we seen that kind of vertical ramp before.. and what happened next?
Xi’s speech is being interpreted as somewhat globalist in nature as he plays down tensions and calls for ‘free trade’…
- *CHINA’S XI SAYS COLD WAR MENTALITY IS OUT OF PLACE
- *CHINA’S XI SAYS DIALOGUE IS THE WAY TO RESOLVE DISPUTES
- *CHINA’S XI SAYS SHOULD PUSH FOR FREE TRADE
- *CHINA’S XI CALLS FOR UPHOLDING MULTILATERAL TRADING SYSTEM
- *XI SAYS GLOBALIZATION MUST BE MORE OPEN, INCLUSIVE
- *XI SAYS TO EXPLORE SETTING UP FREE TRADE PORTS
- *CHINA TO REDUCE TARIFF ON AUTO-RELATED PRODUCTS: XI
- *XI SAYS HOPES COUNTRIES WILL LOWER CURBS ON HIGH-TECH TRADE
And a direct jab at Washington:
- *CHINA’S XI SAYS STATES MUST REFRAIN FROM SEEKING DOMINANCE
- *XI SAYS CHINA WON’T BE THREAT TO WORLD, EXISTING GLOBAL SYSTEM
Then Xi heads down the comedy road:
- *XI SAYS CHINA WON’T SEEK SPHERES OF INFLUENCE (apart from building islands in the Pacific)
Many on the sellside agreed with the algos and said Xi’s speech marked de-escalation of trade war risks:
According to Trinh Nguyen, economist at Natixis, Xi’s speech suggests a conciliatory tone with some concession towards market access. Question remains as to how much of the proposals will take place, and whether that’s enough to appease U.S. President Donald Trump. Still, markets will see Xi’s remarks as positive which will help to lower the risks. “Clearly this is positive for EM Asian FX, especially those closest to the China-U.S. trade spat.”
An almost identical take from First Shanghai Securities strategist Linus Yip, who said that “Xi’s speech sends a positive signal to the market since he backs globalization and the opening up of China market,” although concern over trade disputes remains, as Xi is talking about the long-term picture.
Alan Richardson, a fund manager at Samsung Asset Management said that Xi’s comments are positive for globalization but they don’t address Donald Trump’s immediate task of reducing the trade deficit with China.
Some were downright skeptical, and echoed our own perspective, noting that Xi was not at all as conciliatory as the markets made him out to be:
With the speech over, I’m not at all convinced it was anywhere near as conciliatory as some are going to spin it. “New” offers mostly old news, no movement on core issues like Made in China 2025. Quite the contrary, doubled down on rhetoric about “innovation driven growth”.
— Matt Schrader (@tombschrader) April 10, 2018
For now, and at least until the next Trump tweet, outburst, or Mueller raid, it’s risk is on in US markets (but China’s tech heavy Chinext is down over 1%) as it seems no news is good news in trade wars.
Offshore Yuan strengthened
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