Renewed U.S.-China Trade Fears Shake-Up Financial Markets

U.S.-China trade relations dominated the news on Thursday with one White House official tempering the upbeat comments of President Trump and Treasury Secretary Mnuchin and amid reports that the economic powerhouses will miss the deadline for reaching a deal. Both events coincided with steep intraday sell-offs in the major U.S. stock indexes.

Kudlow Sinks the Stock Market

White House economic advisor Larry Kudlow triggered a more than 200 point drop in the Dow Jones Industrial Average on Thursday when he said that the Trump administration is hoping for a timely trade deal with China, but both parties remain far apart.

“The president has indicated that he’s optimistic with respect to a potential trade deal,” Kudlow, director of the National Economic Council, said on Fox Business. “But we’ve got a pretty sizable distance to go here.”

Kudlow’s comments threw water on a statement on Wednesday from Treasury Secretary Steven Mnuchin, who told CNBC that the talks with China have been “very productive.” However, Mnuchin also said a “wide range of issues” remains to be worked out.

According to CNBC, Mnuchin along with U.S. Trade Representative Robert Lighthizer will head to Beijing next week for another round of talks with Vice Premier Liu He.

Kudlow supported the meeting between the three leaders saying previous talks had “a good vibe to them.”

“We covered a tremendous amount of ground and all the major issues,” Kudlow said. “All of those things are on the table and discussed in some detail. I think those conversations are going to continue.”

Trump-Xi Meeting “Highly Unlikely”

The major U.S. stock indexes extended their losses on Thursday after President Trump said he would not meet with Chinese President Xi Jinping before the March 2 deadline to reach a Chinese-U.S. trade deal.

When asked whether he would meet the Chinese leader, Trump said:  “Not yet.” Pressed further on whether he would meet Xi before the March deadline, Trump said “no” and shook his head.

A White House official, who requested anonymity, citing a lack of authorization to speak publicly about the talks said Trump and Xi may still meet “shortly thereafter” March 2.

Trump’s top economic advisor, Larry Kudlow, told reporters Thursday that he expects Xi and Trump to meet, but that when and where it happens is still up in the air, according to CNBC.

Market Response

The response by investors to the news events was swift with stocks and crude oil breaking sharply and U.S. government debt and gold rising. The U.S. Dollar held on to most of its earlier gains.

The issue over when the meeting will take place and if a deal can be reached in a timely manner is important because of the negative effect the trade dispute between the U.S. and China is having on global economic growth. Needless to say, the longer the trade dispute goes on, the more weakness we can expect in the global economy. Crude oil demand is likely to be especially impacted by the delay.