Trade thunks

We think there will be several effects from a US-China trade deal. These span import substitution, from a probable increase in US sales to China, including technology imports which will actually make it easier for China to meet its “Made in China” goals. A deal will not mean China returning to an export led growth model. Its economy is too large to enable it to grow via net exports. Instead this process will accelerate the shift towards domestic demand driven growth. The primary burden of all of this will fall on the Asian EM feeder economies, commodity exporters and Europe. Both the US and China should benefit from the tighter economic linkages. The deal may be the last “hurrah” for equity markets. Come year-end the Fed could be forced to tighten. It is time to lock in some equity profits. We remain short euro versus the US dollar.

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