Trump and the trade truce

CNBC reported, citing an unknown White House official, that it might not take much for Trump to at least reach a truce in the ongoing trade war with China. All eyes are on the Trump-Xi meeting on the sidelines of the G20 summit, scheduled for tomorrow.

Will Trump Favor Tariffs or Bullish Stock Markets at the G20?

Analysts and officials expect some de-escalation in trade tensions as the base case scenario for the meeting. The unnamed official also told CNBC that Trump is closely watching the stock market, which has mostly been stumbling throughout the week amid speculations and uncertainties regarding the meeting.

Does Trump really care for stock markets?

While nobody is expecting a trade deal at the G20, markets aren’t expecting Trump to walk out completely empty-handed. This conviction also has to do with Trump’s obsession with stock markets and the way he benchmarks his performance versus the Dow Jones Industrial Average Index (DIA). In fact, today, Trump tweeted that the “Stock Market went up massively” due to his presidency. See Trump’s Stock Market Obsession Continues, Advice from Top Investor.

Bank of America Merrill Lynch’s equity and quant strategist, Savita Subramanian, commented, “Consensus expects can-kicking, but no rolling back of tariffs that are already in place. With above-trend economic growth and the S&P 500 at an all-time high, there is no sense of urgency on the part of the US to reach an agreement.” She expects the S&P 500 (SPY) to slide 5% on additional tariffs and increase 6% if there’s a “real deal” between the two sides.

Trade escalation and US stocks

A recent escalation in trade tensions also raised uncertainties about the future growth of US companies Apple (AAPL), and Ford Motor Company (F).

In June, Micron (MU), Intel (INTC), Broadcom (AVGO), NVIDIA (NVDA), and AMD (AMD) have risen 13.6%, 9.4%, 11.8%, 17.6%, and 9.2%, respectively, due to investors’ renewed hopes for a trade deal. Last month, these chipmakers came under pressure after the Trump administration decided to ban Huawei from doing business with US companies.

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