Geopolitics may strain investors’ confidence

The risks of geopolitics and the strength of American employment will battle for investor attention in the week ahead.

Now that President Donald Trump has signed a bill supporting the pro-democracy effort in Hong Kong, investors brace for how China will respond in word and deed. The legislation imposes sanctions on Chinese officials violating human rights in Hong Kong. It also requires the State Department every year to review the special trade status Hong Kong enjoys with the U.S. Revoking that special status would mean higher trade barriers between America and Hong Kong.

The legislation put Trump into a delicate position — not the type of statecraft where he excels. The decision to sign it into law comes two weeks before the president’s next trade tariff deadline against China, and as the two countries are in the “final throes” of the first part of a comprehensive trade deal, as the president said Tuesday. Trump’s decision on the Hong Kong human rights legislation will reverberate through trade negotiations.

The president didn’t have much of a choice. The bill passed the Senate and House with big majorities — enough to overturn a veto. Ultimately, the president was forced to ignore threats from China, or face a political rebuke at home.

U.S. Ambassador to China Terry Branstad was called to a meeting by the Beijing government a week ago in order to “lodge stern representations and strong protest” against the Hong Kong legislation, according to the Chinese vice foreign minister. If the bill becomes law, “the United States has to bear all the consequences that rise,” he told the official state-run news agency before Trump signed it.

So far, the trade war has not greatly affected the American job market. On Friday, the November jobs report will be released. Investors will be looking for a rebound after the end of the GM strike and retailers ramping up holiday hiring. Since August, monthly job gains have been revised up, helping drain recession worries from the investment markets.

The strength in the job market has buoyed investor confidence even as trade tensions, and the uncertainty they fuel, remain. That support may be put to a test in the week ahead.