U.S. President Donald Trump is likely to meet with his top trade and economic advisers on Thursday to discuss whether to impose planned December 15 tariffs on nearly $160 billion in Chinese consumer goods, according to two sources familiar with the plans (Reuters).
But ultimately, the decision rest with Trump himself and that's where the inherent problem lies. President Trump is impossible to predict. So, unless you have some idea of the content of the Trump Twitter feed in advance, I suspect most traders will likely err on the side of caution and remain sidelined.
But looking at the current price action in SPX and CNH, you don't get the impression that investors even remotely think the U.S. will impose December tariffs, which could derail a trade deal. Given that the U.S.-China tariff decision is still to be made this coming weekend, the very same agreement that President Trump suggested was a "fait acompli" not so long ago, there's still a tail risk wagging.
Market positioning
There was an awful lot of de-risking and hedging going on over the past week or so. And while it's impossible to determine the breadth of market positioning at risk precisely, the lack of activity today suggests we're nearing some semblance of risk parity neutrality.
Last word on the Fed
I think the market feels the policy is in an excellent place to warp the year up as 75bp worth of cuts since July has stabilized the economy and put monetary policy back to a neutral stance. And market participants seem to be as equally content that members have built-in an overshoot to inflation expectations, which supports the lower for longer interest rate mantra. Also, the Fed is prepared to support the repo market into year-end (along with buying short coupons if necessary) and has eliminated a year-end tail risk.