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Han de Jong, chief economist at ABN AMRO, notes that the US preliminary PMIs reflecting business confidence showed continued softening with all series moving towards the 50 level and the question here is to what extent the survey was affected by the unexpected reappearance and tone of the US China trade conflict.

Key Quotes

“It is impossible to say with any certainty what will happen in the trade conflict. The rhetoric has become very hostile. We still think that could be a normal pattern in tough negotiations. And we still think both sides have an incentive to do a deal before too long. President Trump wants to be re-elected next year. He needs a deal to show that he is a ‘deal maker’ as he claims.”

“In addition, a complete breakdown of talks and stepping up of protectionists measures will harm the economy and the stock market. That will not be favourable to Trump’s re-election chances. A surge in protectionist measures will not be in the interest of the leaders in Beijing either as a further slowdown of the economy may cause them economic, social and political problems. So our main scenario remains that a deal will, eventually, be done.”

“There is a lot of uncertainty, however. It can be argued that the trade conflict is just a small element in the quest for global political, economic and technological leadership. In such a battle, doing a trade deal is not that important. Political leaders who consider themselves involved in such a battle for global leadership will, most likely, be willing to accept inflicting pain on their own people as long as they think they are inflicting more pain on the other party.”