In an interview with CNBC on September 6, Larry Kudlow, the director of the National Economic Council, said, “President Trump is a very tough negotiator as I think we all know.” Deputies from the US and China will meet later in September. In early October, the trade negotiations will resume in Washington DC, according to Kudlow.
Kudlow isn’t sure about a trade deal
Kudlow said that it’s very hard to predict the outcome of the trade talks. However, he’s optimistic about the meeting. He also said that a deal is only possible when it’s good for the US workforce in the economy.
Currently, the Trump administration thinks that China needs a trade deal due to its slowing economy. In the past, President Trump said that the US economy is in great shape. Jerome Powell also has similar views.
What if there isn’t a deal?
If the trade talks fail, we might see a sell-off similar to the end of 2018. Between September and December 2018, the S&P 500 Index fell by more than 500 points. On December 17, the S&P 500 Index (SPY) closed at $2,416.6—the lowest closing level since July 2017. The downtrend in the equity market could drag oil and energy stock prices. The Nasdaq 100 Index (QQQ) will also react to the trade talks. On a year-to-date basis, the Nasdaq 100 Index has risen 24.1%.
Will Hong Kong make the deal impossible?
Unrest continued in Hong Kong even though authorities decided to rollback the extradition bill. Protesters have urged President Trump to intervene. However, an intervention would only make the US and China’s diplomatic relationship worse. In July, China accused the US of causing unrest in Hong Kong. In early August, President Trump abruptly imposed tariffs on Chinese goods. Legendary investor Mark Mobius said that Hong Kong is important for the US-China trade deal and diplomatic relations. Apart from the political point of view, the business sentiments have been impacted negatively. Alibaba (BABA) delayed its stock listing plan in Hong Kong amid the protests. Alibaba’s offering could be worth $20 billion.
Kudlow’s views on employment data
On September 6, in another interview with Fox Business, Kudlow said, “130,000 payrolls is a solid number and its not a spectacular number.” On the same day, the Bureau of Labor Statistics reported that the August payroll rose by 130,000, which is around 20,000 less than the market’s expectation.
According to Kudlow, the household survey indicated that 590,000 jobs were added. The civilian labor force rose by 571,000. Both of these figures indicate that “America is working,” according to Kudlow.
He also said that the rise in wage growth indicates that “America is getting paid well.” In August, employees’ average hourly earnings rose 3.2% on a year-over-year basis. The rise was 10 basis points higher than the expectations.