Putin and Trump and Xi…Oh my!

Thursday, 27 June 2019
Adelaide, Australia
By Bernd Struben

All eyes are on Osaka, Japan.

And for good reason.

The G20 Summit kicks off there tomorrow and runs through Saturday. It brings together the political leaders and central bank governors from 19 of the world’s biggest economies.

The European Union makes it 20.

As an investor, any G20 gathering is worth keeping close tabs on. But the upcoming summit in Osaka has more riding on it than any I can recall in recent years.

A lot more.

The media takeaways over the following days will influence almost every sector of global finance. Stocks, bonds, currency markets, and numerous commodities…like oil and gold…could all rise or fall on the outcome.

Or rather, on the perceived outcome.

Donald Trump’s sideline meeting with Vladimir Putin alone could have a significant impact. As you know, the leaders of the world’s two nuclear superpowers are both eager to normalise relations. That’s over the objections of the all-powerful spy agencies on both sides. As well as the trillion-dollar military lobby.

My guess is the two men will leave the summit mostly praising the other. And that they’ll announce a new Russia–US summit for later this year.

If Trump and Putin can work together, it would up the odds of a successful deal with North Korea to abandon its nukes. It would also massively change the dynamics in Eastern Europe and the Middle East. Presumably for the better.

I believe Trump will also ask Putin to pull out of OPEC+. Or at least ask him not to agree to extend the current production cuts beyond this month. That would explain why Russian Oil Minister Alexander Novak refused to comment on Russia’s position until after the G20 meeting.

But you likely haven’t heard much about Putin’s date with Trump. That’s been wholly overshadowed by Xi Jinping’s upcoming meeting, at 11:30am local time this Saturday.

More after the markets…

Markets

Overnight, the Dow Jones Industrial Average closed down 11.40 points, or 0.04%.

The S&P 500 closed down 3.60 points, or 0.12%.

In Europe, the Euro Stoxx 50 index finished down 1.41 points, or 0.04%. Meanwhile, the FTSE 100 lost 0.08%, and Germany’s DAX closed up 16.88 points, or 0.14%.

In Asian markets, Japan’s Nikkei 225 is up 189.64 points, or 0.90%. China’s CSI 300 is up 1.27%.

In Australia, the S&P/ASX 200 is up 10.12 points, or 0.15%.

On the commodities markets, West Texas Intermediate crude oil is US$58.90 per barrel. Brent crude is US$65.99 per barrel.

Turning to gold, the yellow metal is trading for US$1,409.30 (AU$2,016.45) per troy ounce. Silver is US$15.26 (AU$21.83) per troy ounce.

In the world of cryptocurrencies, one bitcoin is worth US$13,221.50.

The Aussie dollar is worth 69.89 US cents.

Under pressure

Skimming the mainstream headlines this morning, you’d be forgiven for thinking that China has the upper hand in its trade dispute with the US. And that the Chinese are readily prepared to tough it out indefinitely. Or at least until the US drops its supposedly onerous demands.

For example, this headline comes from today’s Australian Financial Review, ‘“Fight to end”: China vows to resist Trump trade pressure’.

And here’s the first paragraph of the article (my emphasis added):

China’s top diplomat in Australia [Ambassador Cheng Jingye] has declared Beijing is prepared to “fight to the end” in its trade war against Donald Trump to protect its privileges and concessions, while also offering a full-throated defence of its Communist leadership.’

Oh-oh. Sounds like Xi’s G20 meeting with Trump is doomed before it starts. Or is it?

Here’s Cheng’s complete statement to the Australia China Business Council (my emphasis added):

China doesn’t want a trade war. Nonetheless it will firmly safeguard its strong legitimate rights, interests and development rights. As we have made it clear, China is open to negotiations but will also fight to the end, if needed.

In all reality, this is no more, or less, than you’d expect from a spokesperson for the Communist government.

Cheng can hardly come out and say that the trade war is dragging down China’s already slowing economic growth engine. That international companies are delaying new developments in China over fears of ever high tariffs. Or that some businesses have already closed shop and moved to Vietnam, Thailand and other Asian neighbours not in Trump’s crosshairs.

That’s why he makes it clear that China doesn’t want a trade war. And China is open to negotiation.

Not that China is prepared to roll over, show its belly, and give Trump everything he’s demanding. China’s growth plans would withstand truly balanced trade agreements.

But the chart below gives you an idea of some of the headaches Xi is facing back home:



chart image
Source: Bloomberg
Click to enlarge

As you can see, the number of companies considering delaying or cancelling investments in China has ramped up considerably since September 2018. The chart also demonstrates how the impact on China is far higher than in the US in terms of shifting supply chains and production locations.

And if Xi doesn’t offer up enough concessions for Trump to declare victory with another great new deal, Trump is prepared to turn up the heat.

From Bloomberg:

“My Plan B with China is to take in billions and billions of dollars a month and we’ll do less and less business with them,” Trump said Wednesday during an interview with Fox Business Network’s Maria Bartiromo.’

Now Xi and Trump almost certainly won’t announce any great new deal on Saturday. But I do expect they’ll make friendly noises and indicate that trade negotiations will recommence post haste.

Some of that optimism is already priced into the markets. But investors are hedging their bets. Trump prides himself on his unpredictability, after all.

Adding it all up, if Trump and Xi — and Trump and Putin — emerge from the G20 pointing to brighter days ahead (as I believe they will), global markets should rally. At least for a few days.

Nimble traders, take note.

A spot of virtual turbulence

In the middle of the night last night, while I was happily snoozing away, clued-in bitcoin investors had a bit of a shock.

You can see that shock for yourself in the chart below:



chart image
Source: CoinDesk
Click to enlarge

In the blink of an eye (a rather slow eye) bitcoin tumbled from a high of US$13,879 to a low of US$11,754. That’s a loss of 15.5%.

Dramatic, I know.

But now take a look at the one week chart:



chart image
Source: CoinDesk
Click to enlarge

You can see that last night’s 15.5% loss is little more than a dip in bitcoin’s phenomenal surge. Even on the rather short-term time scale of seven days.

As I’ve written here before, if you’re going to invest in bitcoin, or any of its crypto cousins, you need to accept this kind of extreme volatility.

In fact, here’s what I wrote to you on Monday:

There’s no guarantee bitcoin hasn’t topped out for the year already. And even if it is heading back to AU$28,000…or more…it almost certainly won’t get there in a straight line.

For example, on 9 November 2017 bitcoin traded for US$7,751. By 12 November it had fallen to US$5,791. That’s a crash of 25.3% in only three days! Enough to have scared the timider investors into selling at or near that low. Of course, for those brave souls who held on, bitcoin would reach more than US$19,500 on 17 December.’

Now bitcoin is still a fair ways from surpassing its December 2017 highs. But at a current price of US$13,221.50, it is up 6.3% since this time yesterday. And that’s after its overnight crash.

Year-to-date, that puts bitcoin’s gains at 258.4%.

To get all the latest crypto investing advice, just click here.

Tomorrow…

I’m taking a day of leave tomorrow (Friday). I’ll be cruising the Murray River in a restored paddle steamer with my family and my wife’s parents, visiting from Texas.

In my stead, you’ll hear from Murray Dawes, editor of Alpha Wave Trader.

Murray will give you his take on the booming gold market…and what we can expect ahead.

Be sure to tune in for that. I’ll be back with you on Monday.

Cheers,
Bernd