G20/Trade Outlook

AmeriVet Securities’ staff sat in on a conference call with ACG Analytics to discuss the G20 Summit in Osaka this weekend. ACG Analytics is an independent research firm that translates public policy for investment fund managers and analysts. They focus on specific policy issues and actions in the US, EU, Asia and Latin America. ACG seeks to anticipate how government policies in key markets may impact investor strategies. Also on the call was Larry McDonald, founder of The Bear Traps Report. The summary of the call is below:

ACG Analytics suggests cautious optimism on trade going into this weekend’s G20 Summit. ACG forecasts a watered-down resolution of the US/China trade talks coming out of the G20. As Larry McDonald puts it, they predict “a happy meal, no big mac” with the best-case scenario being a mid-term (30-90) day delay of the tariffs on the $325 billion of Chinese goods. A six-month delay of the tariffs would signal weakness by Trump, as he is very likely to impose the tariffs and hurt consumers entering the holiday season when that hypothetical deadline is hit.

ACG categorizes G20 world leaders into four categories: fighters, followers, faders and forgettables. The fighters are leaders like US President Donald Trump, Chinese leader Xi Jinping and Indian Prime Minister Narendra Modi who come into the summit with an agenda and are not afraid to bare their teeth to execute it. The followers seek to jump on the bandwagon of other initiatives. The faders are leaders on their way out of global power; think Theresa May and even Angela Merkel, with the high probability of a new German Chancellor this fall. The forgettables are leaders who are unlikely to make a difference at the summit. ACG’s example is Brazilian President Jair Bolsonaro, who now must deal with one of his Air Force officers being detained in Spain after being found with 39 kgs of cocaine on his way to G20.

President Trump has many meetings set for this weekend. The most anticipated meeting is Trump’s trade talks with Xi Jinping which is set for 11:30 a.m. on Saturday June 29th. ACG says that it is in both countries’ best interest to end the Sino-US trade war. It is important to see top level cooperation for the negotiations to succeed. Although Jinping said that the US must lift the Huawei ban to reach an agreement, this is not likely. ACG’s David Metzner stresses that Huawei is not a black and white issue. For some groups in the US, namely Senator Marco Rubio’s corner of the Senate, allowing Huawei to operate in the US is a non-starter. Recent revelations of Huawei’s close ties with the Chinese military highlight that this trade war has major implications for national security as well as commerce.

ACG says that it is important for President Trump not to repeat moves made in the Buenos Aires G20 last December. Robert Lighthizer and Steve Mnuchin have made granular, on the ground preparations ramping up to Osaka. They have communicated with their Chinese counterparts, a departure from Trump’s “winging it” strategy at the Buenos Aires G20.

The trade war opens opportunities for US-Canada cooperation. ACG iterated that the US and Canada could work together to return imprisoned Huawei CFO as a gesture of goodwill. This would be a significant sign of diplomatic rapprochement and a big tailwind for markets. Prime Minister Trudeau recently met with House and Senate leadership, a signal that the USMCA trade deal is moving along.

There is major uncertainty on the horizon in Berlin. ACG notes high risk for the collapse of German CDU-SPD coalition by September or October with SPD likely to pull out due to poor performance in European Elections. This would result in new elections in Germany with a possible left-wing coalition between SPD, the Greens and the Left Party