This Trade Rally Is One Tweet Away From a Crash

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(Bloomberg Opinion) — Everything is awesome in financial markets.

The sense that a trade deal may finally be on the cards sent stocks and crude soaring in the U.S. Thursday, while flight-to-safety trades such as bonds and gold slumped. Both sides seem to be moving toward a phase one agreement that would involve jointly reducing tariffs in return for vaguer concessions on the underlying issues.

“If there’s a phase one trade deal, there are going to be tariff agreements and concessions,” White House economic adviser Larry Kudlow told Bloomberg.

“If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs,” China’s Ministry of Commerce spokesman Gao Feng said earlier.

There’s a laconic warning buried inside both of those statements: “If.”

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It’s certainly possible that President Donald Trump is tiring of the trade war and as desperate to get an agreement on the table as Beijing seems to think. But the current febrile atmosphere appears to have left the fundamentals of this dispute behind. A single tweet from @realdonaldtrump could be enough to puncture the party mood.

Consider some of the things you might expect to be seeing if a significant agreement was really in the works. China is well aware of the importance of the bilateral trade deficit in Washington, and one of the most promising areas for any agreement is to sharply increase imports of American agricultural and mineral products.

Yet China’s biggest oil producer, state-owned PetroChina Co., is behaving as if the opposite plan is underway. In results last week, the company reported its trailing 12-month capital spending rose to the highest level since 2014, thanks to a government push to lessen China’s dependence on imported fuel.

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