Update (1450ET): After one of his closest economic advisors claimed that the president was 'furious' with China over its Hong Kong crackdown, hinting that the president might escalate the bilateral feud to absurd new heights by removing Hong Kong's special trade status, the president instead mostly caved to the market pressure, after making the country wait an hour to hear him quickly read through a statement, then leave for his next event.
In what was perhaps the clearest sign that the president was calibrating his response with one eye on the stock ticker, the president didn't announce any new tariffs or trade actions, ameliorating fears that he might scrap the "Phase 1" trade deal.
The market cheered the move, as equities surged off their lows of the day as the president simultaneously signaled a more confrontational approach to his dealings with Beijing, while being careful not to escalate an already tenuous situation.
Stocks turned green on the day, and commodities also caught a bid, as the market latched on the following key points:
- U.S. terminating relationship with WHO
- Will take action to stop entry of some Chinese foreign national
- Revoke Hong Kong preferential treatment including trading status (but not right away)
- Will keep the Phase 1 trade deal intact (at least for now)
Today's statement was a mix of new measures and previously announced initiatives as Trump struck a measured balance that helped reassure the equity market, as he skirted around "the nuclear option" of robbing Hong Kong of its special status of disrupting capital flows.
Trump repeated some threats like cutting funding to the WHO and helping move American companies' supply chains back to the US and suspending visas for foreign nationals identified as security risks and to instructing a working group to study "differing practices" of Chinese companies in US financial markets.
"Investment clients shouldn't subject their customers to the risks of investing with Chinese companies that do not play by the rules," Trump said.
But he also included some new ones, as he referenced the "plain violation of Beijing's treaty obligations with the United Kingdom" as a motive in bringing some of the measures being announced on Friday. The national security law is just "the latest" aggression by China against Hong Kong, he said - basically Trump reiterated Pompeo's remarks about HK no longer being sufficiently 'autonomous'.
And although Trump didn't revoke Hong Kong's special status, he directed his administration to "begin the process of eliminating policy exemptions that give Hong Kong different and preferential treatment's from the US' extradition treaty to export controls. The administration will also take "necessary steps" to "sanction PRC and Hong Kong officials directly or indirectly involved in eroding Hong Kong's autonomy and smothering - absolutely smothering - Hong Kong's free system."
"We used to have one country, two system," Trump said. "Now it's one country, one system". This is unacceptable.
- TRUMP: WE WILL BE TERMINATING RELATIONSHIP WITH WHO
- TRUMP: CHINA COVER-UP OF VIRUS COST LIVES IN U.S., ELSEWHERE
- TRUMP: CHINA'S PATTERN OF MISCONDUCT IS WELL-KNOWN
- TRUMP: CHINA UNLAWFULLY CLAIMED TERRITORY IN PACIFIC OCEAN
- TRUMP: WILL TAKE ACTION TO STOP ENTRY OF SOME FOREIGN NATIONALS
- TRUMP: WILL ACT TO REVOKE H.K.'S PREFERENTIAL TREATMENT
- TRUMP ORDERS TO BEGIN PROCESS OF ELIMINATING H.K. EXEMPTIONS
- TRUMP: WORKING GROUP WILL STUDY CHINESE COS. LISTED IN U.S.
- TRUMP ON CHINA: OUR ACTIONS WILL BE STRONG, REASONABLE
Pleased with the fact that Trump seemed to take a relatively 'measured' approach (perhaps because he now has his feud with Twitter to occupy his fury) at his rebuttal to China (the US couldn't just sit back and do nothing, after all) investors are breathing a sigh of relief. But just because Trump didn't go "all in" today, doesn't mean there won't be a more serious reprisal over China's new National Security law, as Congress considers Pompeo's declaration that HK is no longer sufficiently autonomous.
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Update (1440ET): Following reports that Pompeo, Mnuchin and other top administration officials would be joining President Trump, it looks like their chairs are being removed so...maybe they're not coming?
A few aides have removed a bunch of reserved chairs (presumed to be reserved for admin officials) that were in the front row of the Rose Garden ....— Seung Min Kim (@seungminkim) May 29, 2020
And binders on the presidential podium have been swapped ....— Seung Min Kim (@seungminkim) May 29, 2020
CNBC's Kelly Evans, meanwhile, just said "we got the 2 minute warning 10 minutes ago"...we can't help but wonder...
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Update (1430ET): We're still waiting for Trump, but in the meantime, he has fired off a series of tweets explaining away his controversial "when the looting starts the shooting starts" phrase.
....It was spoken as a fact, not as a statement. It’s very simple, nobody should have any problem with this other than the haters, and those looking to cause trouble on social media. Honor the memory of George Floyd!— Donald J. Trump (@realDonaldTrump) May 29, 2020
Meanwhile, more reporters are claiming that today's announcement won't impact trade talks between the two countries, meaning it will likely be mostly bark, and little bite.
- NEWS HOUR WH REPORTER LEE: TRUMP’S CHINA ANNOUNCEMENT WON’T INCLUDE ADDITIONAL TARIFFS ON CHINA OR CHANGES TO THE TRADE DEAL, PER A SOURCE. HE DOES PLAN TO CANCEL VISAS FOR SOME CHINESE RESEARCHERS
At least until Congress certifies that Hong Kong is no longer autonomous and revokes the 'special status' of the Chinese "special administrative region".
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Update (1355ET): Trump is set to start speaking in 5:
Watch it live below:
According to the latest headlines, Trump is not planning to scrap the 'Phase 1' trade deal today. And just like that...
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Update (1315ET): As we await Trump's speech in 45 minutes, headlines about what Trump intends to say are hitting the tape, eliciting a mixed reaction from the market.
Here are a few headlines:
- TRUMP WEIGHS SANCTIONS ON CHINA FINANCE SECTOR OVER HONG KONG
- BIDEN TO DELIVER REMARKS ON MINNESOTA AT 1:30PM ET
- TRUMP ADMIN TO CANCEL THOUSANDS OF CHINESE STUDENT VISAS FROM CERTAIN UNIVERSITIES WITH TIES TO THE CHINESE GOVT - FBN
- U.S. TO COLLECT DEPOSITS ON SOME CHINA HYDROFLUOROCARBON BLENDS
None of this comes as a surprise.
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President Trump will deliver a statement responding to a new national security law that was officially incorporated into law by the Politburo Standing Committee earlier this week. Notably, the statement will be delivered at 2pmET from the Rose Garden - Trump's preferred venue for big foreign policy speeches.
JUST IN: WH says Trump will hold a Rose Garden news conference at 2pm.— Steven Portnoy (@stevenportnoy) May 29, 2020
The fact that the statement will occur during market hours suggests Trump will embrace a milder tack, reiterating some of his more threatening Hong Kong-related rhetoric and possibly slapping several senior Chinese officials with sanctions, as we noted earlier, but leaving a cancellation of the trade deal and a revocation of HK's "special status" for a later date.
Rabobank's Michael Every divided expectations into "optimist" and "pessimist" camps.
- The optimist camp: Trump won’t want to rock markets. Trump won’t want to rattle big business. Trump needs Hong Kong. Trump needs the Chinese market. Trump is all talk and no action. Trump wants his phase one trade deal. Trump doesn’t need hassle before the election. Trump can’t win if he takes on China. Trump needs Chinese capital inflows.
- The pessimist/realist camp: Trump needs a new narrative vs. China domestically, where he is being called soft on Beijing. Trump’s phase one trade deal is finished (China is buying Brazilian soy) and phase two was never going to happen. Trump needs to send a clear message to Beijing over the red lines it has crossed. Trump won’t look good if he has the whole world watching him and produces a small water pistol and not a bazooka. Trump has finally got allies like the UK and Australia moving in his direction on China (the UK is talking about extending visa rights for hundreds of thousands of Hong Kongers), with even the EU seemingly moving against China, so he can’t afford to go soft for fear that they will falter. Trump’s ideological weather vanes like Steve Bannon are calling for aggressive actions vs. China as a si vis pacem, para bellum. Trump doesn’t really care what US businesses think about China because he wants them to focus on the US market. Trump can bail out US farmers now that federal money seems to be no object. Trump has the Fed behind him to prop up markets anyway.
4 points on Trump's China presser today. Sanctions relating to Hong Kong seem very likely but additional actions are also possible - (1) signing of the Uighur bill and potential sanctions (2) restrictions on Chinese students as reported earlier this week (3) confirm no certification for Hong Kong's autonomy, thereby dropping the special status.
Risk assets initially dropped lower on the Bloomberg headline: *TRUMP WEIGHS SANCTIONS ON CHINA FINANCE SECTOR OVER HONG KONG but the devil is in the details.
Bloomberg reports: "The financial sanctions the White House is expected to announce Friday will be targeted in order to leave the US room for escalation if necessary, according to a fourth person familiar with the matter. Trump officials crafting the sanctions are wary of the impact on global financial markets and retaliation from Beijing, the person said." This speaks to CitiFX Strategy's point earlier this month: “Trump will aim to maximize political advantage on this issue while minimizing the adverse economic impact on the US.”
Whatever happens, it should all wrap up before Trump's 4pmET industry round table, which will also be broadcast live. We await the release of a live feed for Trump's 2pm briefing.