China becomes crucial as election enters final leg

Abraham George Macro View

I have always argued ‘China’ will become a big talking point in the upcoming elections. It had not created the sort of noise, it should have by now. However in the last and final debate between the two presidential candidates, China was mentioned 55 times.

For a country that is in total disarray with a virus that originated from China and also thrown into discord from disinformation campaigns from China, it was reasonable for the moderator to ask both candidates as President of the United States, what they plan to do about China. Unfortunately we didn’t get much of an answer. Biden said he would coordinate with allies and make China “play by the rules”.

Leveling the economic playing field (playing by the rules) has been the hallmark of Trump’s two plus year trade fight with China. Trump in the debate had nothing meaningful to say on the “what are you going to do about China” question.

But what has been happening behind the scenes is this. In a speech given at the Nixon Library in July Secretary of State Pompeo called the Chinese Communist party a threat to the future of the free world and has been out traveling to other major countries for alliance building. So far India, Australia and Japan are on board. Discussions are on with Vietnam and South Korea. So who hasn’t really aligned with US? It is Europe.

Europe has a lot of economic interests with China, which include huge investments from China into Europe surrounding the 2011-2012 European sovereign debt crisis. This helped Europe to avoid massive defaults, a collapse in the union and also the common currency.

But on Friday (Oct 23) Pompeo tweeted that he and his European Union counterpart has started their first US-EU dialogue on China.

Will any of these change the course of the election? In fact over the weekend there has been a video circulating in the media about Biden and his family’s involvement in personal business deals in China. Will that really hurt Biden or it will square off against Trump’s and Guiliani’s misdeeds in Ukraine.

Think with 9 days left in the race Biden supporters will vote for Biden and Trump supporters will vote for Trump. For the many others it is not a vote because they love Biden but because they hate Trump. Opinion polls and Las Vegas oddsmakers show Biden is more likely to become the 46th US president than Trump to continue in office. And if anyone has taught us about his ability to surprise us in an election, it’s Trump.

I don’t think there will be any serious impact on the markets whoever wins the election but we will cover this through a special report before the election.

Equities

Markets are very lackluster and both major indexes closed marginally lower. A break below 3415 (low of Oct 22 ) in the S&P could open doors for a move down to 3360. If not, there are chances for the market to challenge the Oct 20 high at 3477.

Bonds

Bonds declined to 171^22 making progress towards the short term objective of 170^30. There could be some snap back rally to the 173 handle but overall pressure should remain to the down side.

Euro

There is no change in the Euro outlook.

Gold

There is no change in the Gold analysis too. It has fallen down close to the 1934 level and only a break of that level can firm the bullish case.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.