Stocks are going to have to fall a lot more before President Donald Trump eases off his tough rhetoric on U.S.-China trade, said Ed Mills, Washington policy analyst at Raymond James.
Mills wrote in a note to clients Tuesday that equities would have to experience a correction of at least 10% “before Trump starts talking up the prospects of a G20-timed deal.” Trump and his Chinese counterpart, Xi Jinping, are expected to meet at next month’s G-20 summit.
“In the meantime, we expect threats of escalation by both sides in an effort to build negotiating leverage ahead of the G20 meetings,” Mills said. “While there is some hope for continued talks, longer-term expectations are being downgraded on the ability to strike a meaningful deal unless political calculations see a significant directional change over the next couple months.”
Trade tensions between China and the U.S. reemerged last week after Trump hiked tariffs on $200 billion worth of Chinese imports. The president also raised the possibility of slapping tariffs on an additional $325 billion worth of Chinese products.
Stocks have fallen sharply since Trump first threatened to raise levies on Chinese goods on May 5. The S&P 500 and Dow Jones Industrial Average are both down more than 4% in that time period while the Nasdaq Composite has shed 6.3%.
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