If you thought Joe Biden loved China before, imagine his joy yesterday as Beijing pushed back against new U.S. tariffs by allowing the yuan to slide through the much-watched 7.00 level. Sure, the State Council issued a statement indicating that they would not let their currency "keep falling," but the signal is unmistakable: Xi Jinping's desperation makes him the Democrat's biggest ally right now.
The Chinese gamble is that Biden wins the election. They're all in. Expect actual meddling in 2020--the stakes couldn't be any higher for Beijing. China is a mess precisely because Trump had the guts to defy it for unfair practices (unlike Obama, Bush, or Clinton). Once someone stands up to the playground bully, everyone becomes more courageous in confronting him. In Hong Kong, the riots (let's stop calling them protests, protestors don't burn down police stations) have intensified with no signs of letting up, despite the "triad" white shirts (Chinese Antifa) beating protestors with sticks in scenes reminiscent of a Jackie Chan film.
It would be funny if it weren't making everyone but short-sellers poorer. Trump has managed to survive relentless opposition and phony scandals in the press for nearly three years in large part because he has allowed the American business engine to breathe. He has used the strength of the economy as a lever for other wins. If the market crashes, the road to a second term becomes cluttered with stumbling blocks.
Therefore, don't just expect China to refuse a trade deal before 2020 as Goldman Sachs has predicted. Take the next logical step and expect China to try to crash global markets leading up to the election.
On the flip side, Trump knows that China is famously averse to losing face due to centuries of humiliating trade deals at the hands of colonizers. Trump also knows that "I refuse to lose" is a fool's gambit. Despite the risks to his re-election campaign, expect Trump to press his advantage. He sees China's house in disorder--from Huawei to Hong Kong, from Belt and Road push-back to South China Sea disputes--and senses the possibility of a real win, the huge win he set out to accomplish: a better trade deal with our biggest trade partner, something none of his predecessors could pull off. To notch a big win against the thieving communist horde would ensure his legacy.
Buying USD against CNH is the obvious play. Buying puts on the Kospi--Korea's stock index--is another, because the real impact of the Japanese trade sanctions hasn't been fully realized yet. The Reserve bank of Australia or RBA also shifted to an easing bias last night, indicating that policy interest rates stand to come down further from their 1% level. The RBA also downgraded their GDP forecast.
This is not to be considered investment advice, but simply to stimulate ideas. Please consult your financial advisor before making any investments.
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