Stocks Slide Ahead Of Mike Pence’s Long-Awaited China Speech

Last Friday stocks took a sharp turn lower following news that VP Mike Pence was set to deliver his long-awaited, twice-delayed China speech today at 11am, at the Wilson Center in Washington, about a year after he harshly criticized Beijing in an address at the Hudson Institute think tank. That speech was widely viewed as the most critical remarks by such a high-ranking U.S. official in recent memory. The address is expected to “reflect on the U.S.-China relationship over the past year and look at the future of our relationship.”

While the tone and sentiment of Pence’s speech are unknown, what is well known is that the vice president has traditionally been an outspoken hawk when it comes to China. As such, as Vital Knowledge pointed out, “If Pence’s speech this Thurs about China is anything like his one from Oct 2018, the markets will NOT be happy”

That may also explain why despite being higher in the pre-market, stocks swooned since opening for trade on Thursday.

Pence’s speech is coming just weeks after President Donald Trump gave a vague outline of the first phase of a deal with Beijing and suspended a threatened tariff hike, signaling a thaw in trade relations between the two countries. But that same week, Washington put Chinese video surveillance firm Hikvision and dozens of other Chinese entities on a blacklist to punish them for the treatment of Muslim minorities, ratcheting up pressure on Beijing over human rights issues.

As such, the risk is that despite the mixed signals, Reuters reported that “many China watchers see Pence’s role as playing “bad cop” on China, so that Trump can shift his tone as he sees fit to strike a deal with Chinese President Xi Jinping.“

So is Pence about double down on his unprecedented China criticism, or will the Veep turn a page after the latest trade war ceasefire? As Bloomberg pointed out a week ago, “if the U.S. purposely planned a speech by Pence calling out China before Trump and Xi meet in November, it won’t help to foster trust.”

If indeed Pence plans on renewing his criticism of Beijing, it won’t help sentiment between the two superpowers, which may be precisely Trump’s intention: consider that in recent days consensus appears to have shifted that US-China diplomatic conditions are improving. However, if the Fed agrees with this, the risk is that Powell will resume hiking just as Trump faces elections in one year’s time, risking another market crash at a critical – for Trump’s reelection – time.

As such, what better way out to extend the Fed’s easing for another 3-6 months than to have “bad cop” Pence slam China, forcing Powell to remain dovish for the foreseeable future, and keeping stocks gravitating new all time highs.