Are Markets Being Manipulated with the Trade War?
Words move markets. Unlike any other President in history, President Trump can move markets. Wall Street watches for those early morning tweets. Well he had one that the market really needed after dropping roughly 600 points last Friday. It was Monday morning, a couple of hours before the opening bell, and the Dow was already down over 300 points in pre-market trading and Trump said this:
“China called last night our top trade people and said, ‘Let’s get back to the table.’ So we will be getting back to the table and I think they want to do something. They have been hurt very badly but they understand this is the right thing to do and I have great respect for it. This is a very positive development for the world. I think we are going to have a deal.”
The Dow turned that 300 point loss into a 200 point gain in no time. Then China came back and said this:
"Based on what I know, Chinese and US top negotiators didn't hold phone talks in recent days. The two sides have been keeping contact at technical level, it doesn't have significance that President Trump suggested. China didn't change its position. China won't cave to US pressure."
"China did not and will not surrender."
Now, before you call me a Trump basher, hear me out. President Trump is fighting for his political life and everything is on the table when it comes to political survival (just being a realist). There is obviously a discrepancy somewhere. The point here is not to accuse someone of lying.The problem is the implication of either side bending the truth.
If China is misrepresenting the facts:
That is a bold move by China refuting what was said and insinuating that the President misrepresented the truth. That just illustrates that this is far more than just a negotiation and a much deeper problem. It also shows a great deal of bad blood versus good working relations between two countries. If you pull back the optics of a negotiation that is going well, it confirms this is a trade war that is in no way even being close to getting resolved. There are two sides who have their heels dug into the ground.
If our President is misrepresenting the facts:
Of course, this wouldn't be the first time someone in Washington bent the truth nor am I trying to make a big deal about it. The most important point is the effect on the market. Whether you like him or not or like his style, he has been a master at communicating through Twitter. The problem is when that communication crosses the line of market manipulation. If what he said was not true, he would have been willing to openly manipulate the stock market by creating a false narrative. His words move markets. The Dow was down roughly 300 points early Monday morning following a Friday where it dropped roughly 600 points. Then following the tweet it was up over 200 points due to new optimism about China and started and ended that day strong based off of those optimistic words. It also wouldn't be the first time a President has manipulated a stock market - see the crash of 1987 and Ronald Reagan for a good example.
In my opinion, Wall Street has acted as if this trade war will end like most political skirmishes. Just another day in Washington. What if it is a much bigger deal? There is a reason that we haven't had a major trade ware since 1929. I will give props to President Trump trying to tackle what most all Presidents would avoid. Maybe he wishes he would have waited until a second term to kick the hornets nest?
My concern is the market. The market goes up and down based on emotion. What happens when reality is to hard to ignore? The markets don't deal with negative reality very well. The fact that either would misrepresent the facts in that way paints a worrisome reality for the stock market. It creates uncertainty and markets hate uncertainty. We better hope that this trade war is going better than it looks.