*US markets may never be able to achieve record highs without Chinese support
*Trump not ready to impose a limit for now
*China will never stay reticent, counteraction is the biggest threat
*Crude maintains its seven consecutive days of losses
Wall Street was rattled on Friday on the back of the news that Larry Kudlow, the head of the President Trump’ national economic council could be considering to impose limits on US investments in Chinese companies. This particular news created a massive panic among traders.
The S&P 500 index closed lower by 0.5% and the shares which took the most amount of beating were the Chinese companies such as Alibaba and Baidu Inc. The major question which many investors are asking is if the US markets can achieve record highs without the Chinese support? I am not only talking about the current escalating situation between the US and China but also about the upcoming holiday period in China which starts from tomorrow. The chances are that the markets would continue to consolidate- the best-case scenario.
Nonetheless, the Trump administration has denied above rumours and confirmed there isn't any such plan for the time being.
China Determined To Keeps Its Markets Open
We know that China is determined to open its markets to foreign investors. Beijing no longer wants to keep its economy closed. For argument sake, if the US does adopt this path- meaning it starts to delist the Chinese companies from its exchanges, and at the same time, it also imposes limits on US investments in the Chinese market by the US investors, it would create serious panic in the markets.
These kinds of activities are met with retaliation actions, China isn't the kind of a country which is going to be reticent. One always has to think of the action taken by Beijing which would have a far larger impact on the US economy than anyone can think.
Trump Tactic
As we said on Friday, sometimes, these types of rumors are only inflated in the market to distract investors from other major issues such as the ongoing impeachment inquiry.
But overall, limiting US investment in China isn't imminent as the Trump administration has decided to not take serious actions, however, the reality is the cat is out of the bag, meaning the US can always use this particular tactic to bend China to its will and market participants understand that this current war can get ugly to this extent.
Crude Continues Its Retracements
In terms of geopolitical concerns, the common sense is prevailing for now in Saudi Arabia. The Crown prince Mohammed Bin Salman has said in his recent interview that a war between his country and Iran would be a total disaster for the global economy.
We have talked about this particular element several times before. The fact is that Saudi Arabia cannot afford another war on its doorsteps.
The Prince has a much larger vision for his country and an increase in geopolitical tensions threaten his 2030 vision. He has made his position clear that he is seeking a more “political and peaceful approach”.
The WTI price is trading lower today by 0.27% and it is maintaining it seven consecutive days of losses. We don't really see any particular reason for the prices to move higher, and for the time being, the best-case scenario for the price action is more of consolidation or the price may continue to grind lower.
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