Still lots of earnings announcements this week but we’re done with the real exciting news from the likes of Amazon (AMZN), Facebook (FB) and Netflix (NFLX). This week the top names are companies like Pioneer Natural Resources (PXD), The Walt Disney Company (DIS), and Perrigo (PRGO).
On the economic front, the pause in headline news is just as pronounced. No jobs report and no Federal Reserve meeting. Lots of inflation data–the Producer Price Index on Thursday and the Consumer Price Index on Friday–but its extremely unlikely that these reports will change anyone’s mind about the odds of a Federal Reserve interest rate increase at the Fed’s September meeting.
What would move markets is news that China and the United States have resumed trade talks and that a tariff war isn’t inevitable.
The rhetoric at the moment isn’t promising with President Trump proclaiming that his strategy of tariff increases and threats of more increases to come in September is working. And the Chinese government is threatening its own retaliatory tariff increases and labeling U.S. policy blackmail. China’s statement that it will continue to buy Iranian oil in spite of renewed U.S. sanctions certainly isn’t lowering tensions.
But…and this is what I find interesting below the surface…muted domestic criticism of Chinese President Xi Jinping and his tariff hard line has emerged in China. Remember this is China so we’re not talking about an outpouring of criticism in the largely state-controlled media.
Xi’s name has recently shown up significantly less frequently on the front pages of The People’s Daily. A scattering of essays, like that by Xu Zhangun, a law professor at Tsinghua University, have appeared on Internet sites. (Given how tightly controlled the Internet is in China, somebody in the state and/or party apparatus is letting these essays see the light of day.) Xu’s essay, which referred to Xi only as “that official,” accused him of reversing years of reforms and moving back to the days of politics around the cult of personality under Mao Zedong.
Let’s be clear what we’re not talking about here. We’re not talking about any threat to the Communist Party Control of the economy or government. We’re not even talking about any serious threat to Xi’s position.
What we are seeing is a voicing of discontent by some factions of the Communist Party with policies that might endanger economic growth in China. The party is very aware that its legitimacy hasn’t rested on ideology for a long time, but depends on delivering the economic goods to China’s population.
Under some circumstances I could see the current criticism leading to a low-key resumption of trade negotiations as Xi decided to show his flexibility–and therefore strength. However, every time that a Trump administration official blasts China or claims that the United States is “winning” such a move less becomes less likely.
I can’t claim that I know exactly how the Chinese government will decide to navigate the situation. But there is some pressure on Beijing to return to talks. And even just a resumption of talks would lead to a big bounce in emerging markets and commodity prices.