Trump’s trade war with China matters more to the market than the elections and it’s not going well

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“I’m glad Trump talked to Xi last week. I think the atmospherics have gotten a little bit better, but frankly I think Trump said that because he knew the market would be pleased, and he wanted to see the markets rally ahead of the election,” said Greg Valliere, chief global strategist at Horizon Investment. “Xi said something kind of critical over the weekend to indicate we’re a long way away from a deal.”

Xi spoke at the opening ceremony of China’s International Import Expo, an event where China has been hoping to show that it is sincere about boosting imports and elevating its consumer in the global trade arena. But as trade tensions with the U.S. rise, China’s exports have also risen, with the trade gap with the U.S. at a record $40.2 billion in September.

“As globalisation deepens, the practices of ‘law of the jungle’ and ‘winner-take-all’ are a narrowing road that leads to a dead end,” said Xi. “Inclusion and reciprocity, win-win and mutual benefits is the widening and correct path.”

Xi also said China would support reforms to the World Trade Organization and improve protection for intellectual property, two ideas supported by the U.S.

Trump, in his comments Friday, said China’s economy is hurting and that it wants a deal. But if one can’t be reached, the president said he’s ready to move ahead with another $267 billion in tariffs. China’s stock market has been sliding, and Shanghai equities are off by about 20 percent year to date. Service sector data, released early Monday, showed slowing orders, with the Caixin/Markit services purchasing managers’ index falling to 50.8 in October from 53.1 in September, the lowest in more than a year.

“There’s nothing in Xi’s speech that shows he’s about to capitulate. I think what happened is Xi and China made a deal with [Treasury Secretary Steven] Mnuchin earlier this year to reduce the trade deficit. China would buy more goods including agriculture and energy and then Trump said we don’t have an agreement. I think that soured the relationship,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “[China] is seeing this as a long-term protracted struggle and because of that they’re trying to find ways around it.”

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