With the G20 approaching this month here in Japan, and a trade war raging between the US and China, all eyes are on the major indices and a host of possible triggers for a market reversal. Here is a list of facts on which to focus your attention.
1. The S&P 500 could rally to 2,900 then 2,947 or higher on “positive comments” by President Trump. Still a rally to 2,947 or higher is, in our view, a level to establish bearish views. In Nikkei 225, 21,500 to 700 could meet resistance and reverse.
2. The US yield-curve inversion is getting a lot of attention, adding fuel to recent releases re a possible recession.
3. Eager sellers are ready to sell again. Many shorts were taken out in Nikkei 225 and S&P 500 in the past week and they are ready to re-establish bearish views.
4. The true trade is not possible now. Both the US and China know this and they will both fight for time as the Chinese try to discredit and undermine President Trump and his 2020 election. Trump for his part wants to inflict pain on the Chinese economy and trigger a recession. Note that structural issues prevent a trade deal now and in the next six months at least. This is a generational problem that will not be solved quickly.
5. US trade war has now spread to India, and of course India has answered the Trump White House in kind. The response from India has hit the fragile global trade system and we think it will start falling apart.
More on this topic in the coming week when G20 takes place.