In a Labour Day speech yesterday, President Donald Trump vowed to scale back US economic ties with China drastically and to punish American companies outsourcing in the world's second-largest economy.
Utilizing rhetoric similar to the one he used in the 2016 Elections campaign, Trump promised to 'bring back American jobs from China', which is represents an essential component of his "America First" stance.
The President returned to his grassroots agenda after the primary focus over the last several months was mostly placed on the impact of the coronavirus on the global economy and the arduous road to recovery ahead.
"We are going to hold China accountable for allowing the virus to spread around the world," Trump said." Now you can understand why China would much rather see Sleepy Joe than Donald Trump."
According to preliminary polls, at present, Joe Biden stands a 71.1 per cent chance of winning the November election. That is why Trump's decision to once again emphasize 'getting US jobs back' can be interpreted as an attempt to breach this gap at the polls using a strategy that won him his current presidency.
Trump is likely to dial up his rhetoric on China even more as the election date comes closer, risking to reinvigorate the trade war that weighed down on the global capital markets prior to the coronavirus crisis.
Investors still haven’t started to weigh in on the likely ramifications from such a potential escalation of tensions between Washington in Beijing, as bond markets remained relatively quiet yesterday.
This is partly due to the fact that major exchanges remained closed yesterday due to the Labour day celebrations. Nevertheless, the currently evolving situation poses a real threat to the tentative recovery of most securities.
As can be seen on the daily comparison chart below, the yields of the US 10-year and 30-year bonds have recently picked up from the significant low that was reached on the 5th of August.
Even still, the yields of the low-risk securities established new peaks that are considerably lower than the previous peaks that were reached on the 5th of June. This means that uncertainty continues to persist in the bonds market, and investors remain cautious of the continually evolving situation.
Wary Trump dialling up on his rhetoric on China in a bid to secure the popular vote in the upcoming November elections could continue to cause tribulations across the markets for low-risk securities.