Update (1300ET): As we noted earlier, stocks jumped around the US cash open on optimistic headlines about possible tariff delays by Bessent and Greer: “*GREER: EXPECT CHINA RARE EARTHS MOVE DOESN’T GO INTO EFFECT,*BESSENT SUGGESTS POSSIBILITY OF LONGER CHINA TARIFF TRUCE”.
The realization that what they actually said was a nothing-burger took a while for the over-excited market to recognize and by the European close, stocks were fading once again.
Gains then quickly faded as the good-cop/bad-cop routine fell apart after Greer and Bessent also noted China’s hostility in global trade (and blamed a lone wolf Chinese diplomat for the shitshow).
“Perhaps the vice minister who showed up here with very incendiary language on August 28 has gone rogue,” Bessent said during the press conference at Treasury. “This individual was very disrespectful,” he said, after earlier calling him “unhinged” in the CNBC event.
Li had warned China would “cause global chaos” if the US went ahead with plans for port fees for Chinese ships, Bessent said.
“Maybe he thinks he’s a wolf warrior,” he said, referring to a term used for aggressive Chinese diplomats.
Bessent later added the following which did not help:
“If China wants to be an unreliable partner to the world, then the world will have to decouple,” Bessent said.
“The world does not want to decouple; we want to derisk. But signals like this are signs of decoupling, which we don’t believe China wants. And again, we do not want to decouple. We should work together to derisk and diversify supply chains away from China as quickly as possible.”
Desk chatter was that the weakness was triggered by a WSJ article “China, Betting It Can Win a Trade War, Is Playing Hardball With Trump” that suggested Chinese leader Xi Jinping thinks president Trump will fold before launching new tariffs that would roil markets.
In other words, equity weakness is ‘required’ to stop Trump’s escalation and so the market tests that thesis.
Around 1300ET, stocks legged lower still as Fed’s Waller noted: “LAYOFFS, LOWER HIRING DUE TO AI EXPECTED TO INCREASE“.
All of which dragged stocks back down into the red…
* * *
US equity markets are surging again this morning following comments by Treasury Secretary Bessent (and USTR Greer) that appeared to suggest the possibility of a tariff truce with China.
U.S. Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent condemned China’s decision last week to step up curbs on its exports of rare-earth metals, calling the actions part of a broader plan by Beijing to control the world’s supply chains.
“China’s announcement is nothing more than a global supply chain power grab,” Greer said.
“This move is not proportional retaliation. It is an exercise in economic coercion on every country in the world.”
So that was Bad Cop.
And then Bessent played Good Cop…
But while Bessent said China’s “highly provocative move” comes after the U.S. has made significant efforts to de-escalate tensions, he said that the U.S. would rather not take action against Beijing.
“I believe China is open to discussion, and I am optimistic that this can be de-escalated ultimately.
We are confident in the strong relationship between President Trump and President Xi.
We’ve had substantial communication with the Chinese over the past few days, and we believe that there will be more forthcoming this week,” Bessent said.
It is possible that “we could go to a longer roll in return for a delay” on rare earths export controls, Bessent said when asked if US would delay implementation of additional 100% tariffs on China.
“All that’s going to be negotiated in the coming weeks” before Chinese and US leaders meet in South Korea, he says.
None of that sounded particularly new or different to us, but no matter the confusion, the market ran with it…
But US-listed rare earth stocks tumbled on the possible delay: Critical Metals -20.5%, USA Rare Earth -13.6%, MP Materials -7.3%, Ramaco Resources -9.5%
Will the market’s strength prompt a response from Trump, using that hubris to take another shot at Beijing?
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