Fed Chairman passed the “hot potato” to President Trump yesterday as it’s now his turn at the G20. As we all know, President Trump is quite the wildcard as there is no idea what he might say or Tweet after he meets with President Xi of China for dinner Saturday. The best case outcome would be friendly cease fire talk with Trump backing down on increasing tariffs for a six month period and President Xi bending on some of the sticky points China has been reluctant to address. Nothing of substance will come from these meetings as both are not detail oriented thinkers. But the world really needs both sides to come to dinner with the outcome being a forward path of negotiations.
The worst case outcome is one ounce of harsh rhetoric from either side. Just one negative Trump tweet could sink the markets by 5% in the coming week.
A couple of other G20 best case/worst outcomes are with oil production as there are talks scheduled to stabilize the oil markets. MbS from Saudi Arabia will be there as will Putin and if they can announce an oil production cut, crude will bounce by 5%. MbS is going to the G20 with a lot of clouds above him and it could be very uncomfortable with any interaction with Trump, Putin, and Turkey’s Erdogan.
The markets bounced yesterday and are giving back some as risks remain high headed into the weekend and with more Trump/Mueller noise hitting the tape today. My current bias is slightly bullish expecting a little further upside from here (lower high bounce) but knowing the risks remain elevated using a full stop on this call at S&P 500 2635-2625 zone.
