Weekly Trade Talk Progress: U.S. Gains Edge, China Fears Trump May Walk Away from Negotiations

U.S.-China trade negotiations took a backseat last week to central bank activity and as well as key global and domestic economic reports. However, activity continued behind the scenes. Also absent this week was the day to day jawboning from U.S. and China officials and even President Trump that seemed to paint an optimistic view of an imminent trade deal at times even though the activity in the U.S. equity markets indicated investors were growing tired of the reports.

The stock market took a pause early last week despite reports that U.S.-China trade talks were in their “final stages.” Some experts said the weakness was fueled by investors who had grown weary of the slow progress in the negotiations.

Kudlow:  Tough U.S. Tariffs Give Trump an Edge in China Trade Talks

Even with the lack of fresh news over U.S.-China trade negotiations, White House economic advisor Larry Kudlow offered a positive spin at the end of the week.

“We have them over a barrel,” said Kudlow, director of the president’s National Economic Council. “On the other hand, we would like a good deal. Both countries should benefit.”

“We have hurt them,” Kudlow said on “Squawk on the Street,” as both sides hope the finish line to resolving their trade war is near. “We are still negotiating by phone and teleconference.”

“The documents from two weeks ago advanced enormously. That’s why the president is optimistic about the potential for a deal,” Kudlow added. But he stressed, “I don’t want to hang a timetable on this.”

Kudlow emphasized Trump’s message. “He’s very serious, if we don’t get a good deal for the United States…then we won’t get a good deal. You saw him walk away from North Korea” nuclear talks in Vietnam last week.

Trump Has Beijing Worried

After President Trump ended abruptly the nuclear talks between the United States and North Korea, Chinese officials grew worried Trump could do the same in trade talks, a senior administration officials told CNBC on Friday.

“The Chinese saw him walk away from North Korea and they’re concerned he will walk away from the China deal,” the official said. “You don’t want to send Xi to Mar-a-Lago and have Trump walk away. That would be a diplomatic catastrophe.”

The official went on to say that Beijing and Washington are going through “line-by-line negotiations.” “What they don’t want is to send their guy here and POTUS say ‘nope I’m out of here, see you on the 9^th hole,” the official said.

Experts Weigh-in on Trade Deal Expectations

Josh Brown, CEO of Ritholtz Wealth Management and a CNBC contributor, told CNBC’s “Halftime Report” that “We finally have deal headline fatigue. We have rallied 80 days each day, on renewed optimism over China talks, and 50 different derivations of that. But it’s the same story every day. Sometimes it happens in the middle of the day, so we can open red and then we close green. So, how many days in a row can you rally on the same premise? So I think the market now understands something will happen. I don’t think the market actually cares about the details. I think we want some sort of resolution, and then some people will say it’s good, some will say it’s bad, and we’ll be back to politics as normal.”

Safanad’s chief investment officer, John Rutledge, who advised former Presidents Ronald Reagan and George H.W. Bush, contended on CNBC’s “Squawk on the Street” that a finalized deal could actually boost stocks:  “There are some people inside our government that think that China’s been pushing their currency down. It has fallen, but they’ve actually been trying to prop it up. It’s fallen because foreign investors have pulled their money out of China, making it difficult to maintain the currency at its current level. And so announcing a stable currency is going to discourage those people from pulling capital out. It’ll actually make the People’s Bank of China’s job a lot easier. The economy is very weak, they’ve done all they can do to stimulate it, and it’ll take some time before that takes effect. But I think the markets themselves are going to really like the deal.”

Sarat Sethi, managing partner and portfolio manager at Douglas C. Lane & Associates, shared a few ways to play the market’s reversal on “Squawk Box”:  Yes, a lot of this ‘stimulus’ is baked in, but if you look at the overall market, I still think the areas that we can still go forward if this deal is done properly and there are specifics that can help, especially in the industrials, the cyclicals, the financials. They’ve come back, but not as much as the rest of the market. And I think, on a valuation basis, that’s where the opportunity’s going to be because, really, if you look at it:  what are the parts of the economy that haven’t really come ahead?  FANGs, tech, they’ve all kind of rallied, but let’s look as specifics.”