Trade Talk News Lifts the Market, But Will Powell 'Yank the Football Away'?
Here's how we're gaming it out, as Bessent manages expections and with the Fed on tap Wednesday afternoon.
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We are seeing the market’s enthusiasm for trade talks perk up following comments from Treasury Secretary Scott Bessent. In recent presentations and other events, Bessent has said the U.S. is negotiating with 17 trading partners, calling out that China was not one of them. However, last night it was revealed that Bessent and U.S. trade representative Jamieson Greer will meet with their Chinese counterparts in Switzerland this weekend to discuss economic and trade matters.
Before we get too excited about this, we have to consider other comments from Bessent yesterday, at an oversight hearing on Capitol Hill, that some trade deals could be announced as early as this week and that up to 90% of deals could be completed by the end of the year. Bessent also remarked that des-escalation is a more likely path than a big trade deal, at least in the near term.
Is it possible Bessent is managing expectations with the second half of that comment? Absolutely, but at the same time, bilateral trade deals do take time to hammer out, and we should expect some back and forth, including potential headline bluster as part of the process.
As we’ve said, trade talks are one thing, but trade deals and their details matter far more. Still, we are encouraged by what looks to be a thawing between the U.S. and China as well as prospects for trade de-escalation. We interpret trade de-escalation to mean lower tariffs than the sizable triple-digit mixture of reciprocal and retaliatory tariffs slapped on Chinese goods by Trump. Even Trump and Bessent have said that the current status quo with China is unsustainable, but again, that doesn’t mean a big trade deal is imminent.
Gaming it out, we’re more likely to see tariffs on both sides reduced as part of trade talks that eventually lead to a larger trade agreement. That also explains Bessent managing expectations with the comment “up to 90% could be completed by the end of this year." Our concern is with the market getting its hopes up too high only to be let down.
While not quite like Charlie Brown attempting to kick the football before Lucy yanks it out of the way, it is something that will keep us cautious, especially of comments from Fed Chair Powell today that, based on recent data, are more likely to be incrementally hawkish than not. Any such sobering comments have the potential to take some of the wind out of the sails about trade talks lifting the market this morning, It also means we’ll want to keep a close eye on the S&P 500 relative to its 50-day moving average near 5568.
