Words are not deeds so be careful
Geopolitical uncertainties are still very much in the background
Michael Cohen's office was raided by the FBI, more threat for Trump
Despite the disappointing French Industrial economic, European markets are trading higher. Traders are taking a cue from President Xi Jinping’s speech who was successful in calming the markets and not escalating the tensions further on the US and China trade war issue. However, it is important to keep in mind as an investors that these are only words and if deeds are backed, the turmoil would continue.
Nonetheless, for now, the president sent the message that he is willing to open the economy further and lower taxes on the auto industry. Traders have taken this as a more positive outcome because for them the Chinese president understands that the trade war would not benefit any country.
One could say that perhaps president Trump’s strategy has yielded some results, especially when Xi Jinping confirmed that he is also determined to improve the environment for foreign companies. But one needs to be careful because improving environment for foreign companies doesn’t necessarily mean American companies.
His subtle message for Trump was clear that unfair tax penalties will not be welcomed. Overall, I think the markets have focused more on the positive tone of the president Xi Jinping and his remarks that China will remain open for the global trade.
No matter what the president Xi Jinping said, the geopolitical uncertainties are still very much in the background. We think it is important for investors to keep in mind what happened in Syria (a horrific chemical attack) and Trump's comments "big price to pay". The US has imposed a fresh set of new sanctions on Russia and the tit for tat reaction is still due.
Moreover, the US equity market lost its mojo yesterday when the news broke out that Trump's lawyer, Michael Cohen's office was raided by the FBI. He is under investigation for bank fraud & campaign finance violations. These raids clearly present a threat for president Trump because the FBI will not only be interested in finding the source of the money paid to Daniel (real name Stephanie Clifford) but patterns of other payments as well.