US equity markets could be punished today, look for massive volatility at the Friday open.
After months of anticipation and hopes building that the US and China would find common ground in the ongoing trade war, the decision for the US President to add tariffs on $200 billion in goods, taking the 10% tariff to 25% overnight. The key to this trade war will be just how long these tariffs will stay in place, as there are now analysts who are saying that the US will suffer a 0.4% reduction in GDP (from the growth levels), and China, which is expected to see growth around the 6.5% level, it could see a GDP rejection of 1.5% so down to the 5.0% level or lower. These are real life consequences that economists are dealing with each down now.
The next obvious question is just how much will this economic slowdown in the US and China impact other parts of the global economy. The negotiations will continue as the Chinese Vice Premier Liu He met with top US trade officials Thursday evening in Washington, just hours before the new tariffs were set to start. President Trump said he would rather not apply tariffs but according to his team the Chinese negotiators made changes to already agreed upon components.
President Donald Trump had set a 12:01 ET Friday deadline for these higher tariffs to be enacted. Trump did reach out to the Chinese delegation by saying that the White House could reverse that decision on progress in negotiations. But the President also – he seemed to be joking – that the tariffs are an “excellent” alternative to a deal with China and that he would, if forced, apply said tariffs. And he did.
What to expect from markets? Markets will be volatile. The S&P 500 and Dow will likely come under pressure today as the Friday trading day will see strong two way interest. We at Classiarius believe that the US economy is sound but the short-term equity market will sell off – with perhaps a 60 point decline in the S&P 500 over the next three trading sessions.