Just before Europe opened on Monday morning, with US equity futures tumbling below 2,800 and the Chinese yuan in freefall after a tense weekend in which traders stewed over the latest trade war escalations and rushed to sell, algos sent risk surging following a statement by President Trump in Biarritz, France, that “China called last night” and said they want to resume trade talks, later elaborating that two “high-level” Chinese officials had called to try and restart stalled negotiations. He turned to Treasury Secretary Steven Mnuchin for backup, and Mnuchin said there had been “communication,” later amending it to “communications.”
Almost immediately, China denied that any phone call had taken place, insinuating that Trump had made up the entire event – ostensibly to avoid a market landslide, and if so, Trump indeed achieved his goal: in the span of seconds, the market mood changed, and stocks surged on Monday, and have continued their ascent higher on the assumption that sentiment in the trade war had shifted. The reality, of course, is that there was little doubt as to whether a phone call had ever taken place. It hadn’t.
Time for a fake phone call between the US and China
— zerohedge (@zerohedge) August 27, 2019
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And now, according to a CNN report, White House aides “conceded the phone calls Trump described didn’t happen they way he said they did,” and “instead, two officials said Trump was eager to project optimism that might boost markets, and conflated comments from China’s vice premier with direct communication from the Chinese,” precisely as we said had likely happened on Monday morning.
Trump has become increasingly concerned about the market’s inability to rise comfortably above 3,000 and is agitated, CNN reports, because “the economy is flashing warning signs Trump didn’t expect, his trade war with China is dragging on months longer than expected yet he refuses to give in,” and he’s “spinning to find victories to sell to voters.”
For now, Trump is enjoying an S&P that remains just a few percent below its all time highs. But what happens once algos realize that Trump will say any lie just to push risk assets higher? And is that why bond yields continue to grind to new all time lows, because while stocks may be fooled by Trump’s lies, bonds know that the more Trump tries to push stocks higher, the greater the fall in risk assets will be.
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