11/15 Daily Market Note: The Day Has Come For A Potential Positive Inflection in U.S.-China Relations
11/15 Premium Strategy Note
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Folks -
Geopolitical stakes are very high later this evening as the Biden and Xi meeting is set to commence after Xi’s dinner meeting with business leaders. Very important business leaders such as Citi’s Jane Frazer, Tesla’s Elon Musk, and Microsoft’s Satya Nadella will attend the CEO summit during this conference.
Ahead of this important meeting, officials from both sides have prepared logistics to ensure a smooth trip and meeting between the two global leaders Biden and Xi. The primary topics will be Military communication, Export Curbs, and Fentanyl control. Generally speaking, my thinking at the moment is the following:
I see a window of opportunity for military communication to slowly resume, but it may not be made public immediately after the conference. I believe the probability that the U.S. and China come together to de-escalate tensions around Taiwan (at least for now) is high – which represents good news. There will be skirmishes on military communication in the future, but for this conference specifically, I think the outcome is net positive.
On Export controls, I’m not so optimistic as the U.S. has a Congress that includes many members looking for tighter control on U.S. technology as well as raising tariffs on sensitive Chinese imports like EV cars. When it comes to technological considerations, I do not believe there will be much enduring progress at the onset here.
On Fentanyl control – if there is going to be an easy winning topic from which both sides will agree, this is it. This is where Biden and Xi can work together to prevent the further spread of this drug endemic. Additional areas where I see cooperation being likely is Climate change.
Politically, the more items that the two sides can agree upon, the more positive the calculus becomes in their dynamic. For instance, if a relationship has 5 issues –3 of which are major, 2 of which are minor – being able to solve 2 minor issues out of the 5 at the very least keeps the status quo moving forward. All we need is for the status-quo to not be disrupted, and for some improvement in the tonality of their conversations, and that is enough for an 10-15% rally from swing lows in China to materialize. So far, about 33-38% of the rally has been priced in in my view.
Below we’ll talk about the context that the U.S. market is in after its large advance - and my thinking on risk/reward…make sure to take advantage of my special offer below if you haven’t yet already.