https://www.zerohedge.com/news/2018-04-10/one-bank-explains-how-market-was-completely-fooled-xis-speech

One Bank Explains How The Market Was Completely Fooled By Xi's Speech

The big catalyst, as discussed first thing this morning, for the broad surge in global stocks was that in his speech at Boao, aka "the Asian Davos", China's president Xi took a conciliatory approach, refusing to retaliate to Trump's recent trade war escalation. But, as we asked this morning, was Xi's speech really such a profound "risk on" catalyst, or was it just algos mistaking a token statement by a Chinese bureaucrat - who recently crowned himself emperor - for a sincere change in course?

First, as we pointed out earlier, UBS said that "President Xi's economic speech recycled the January Davos remarks" while Citi echoed this sentiment, and added that while Xi's conciliatory speech surprised the market, "a careful read of the original text in Chinese reveals that the speech was more a reiteration of existing commitments rather than new major initiatives or concessions to Trump."

Here Citi reminds us of where is Xi speaking, and what the speech is supposed to achieve:

    To the political and business leaders of Asian countries. China is looking to start positioning itself as the emerging leader of free trade. For Chinese leaders, this is not a venue to engage in conflicts (or to announce key decisions affecting the trade war), but to make allies. The speech, which entails a long account of the Asian history and discussion on further strategic collaboration within Asia (e.g. One Belt One Road policy), was motivated to showcase China’s increasing power in the region and to gain support from the international community.

But more notably, Citi reminded us that what Xi said early Tuesday has been said many times before. Recall that reducing car tariffs and expanding imports were claimed in January at Davos by Chinese official Liu He, who heads the General Office of the Central Leading Group for Financial and Economic Affairs. Here, a detailed plan of the gradual reduction, rather than empty promise, is needed to manifest the seriousness of the proposed change.

Naturally, China - which has no intention of actually following through with its promises - refuses to provide one.

Then, consider the context: on Friday, China’s State Council announced detailed USD50bn tariff retaliation and China’s foreign ministry said negotiations are impossible given current environment. Then Tuesday, news leaked on Chinese study of the RMB devaluation as retaliation.

Here, as Citi correctly notes, "a 360 degree swing of attitude within one week is not improbable but highly unlikely."

So putting it all together, what the world's biggest FX trading desks concludes is that "what Xi said was more for rhetorical purpose, rather than substantial concession, even though the market seems to be trading like latter."

In other words, the market was manipulated by once again overinterpreting what a Chinese career politician said, when in reality the signal content of Xi's speech was precisely zero, something Matt Schrader pointed out last night.

    With the speech over, I'm not at all convinced it was anywhere near as conciliatory as some are going to spin it. "New" offers mostly old news, no movement on core issues like Made in China 2025. Quite the contrary, doubled down on rhetoric about "innovation driven growth".
    — Matt Schrader (@tombschrader) April 10, 2018

The bank's conclusion: "the trade war has the risk of further accelerating before eventually cooling down by reaching agreements that both parties can claim as victories, which will take time. Market will likely remain choppy in upcoming headline risks regarding trade war, so short term tactical trades are favored at the time."

Judging by the modest fade in today's market, the message appears to be spreading.