After a week of surprises and shocks, and an equity low on Wednesday, there are some traders and investors who are starting to build long-term positions again. Does this mean the market has started to settle down? Absolutely not, and it is becoming clear that the the trade war will only be elevated to higher levels with the US and China now moving from tariffs on goods in blocks of $100 billion dollars, to food and energy.
China is now fighting for a piece of the global trade system that the US is now shutting down after 75 years of loyal service. In short, the US is getting out of the global management business. So the equity market is now pricing a trade war that will last into the US election – bond markets priced in the trade war months ago. Currently markets are only 100 points off the all time highs for the S&P 500.
People are concerned about growth risk as the trade war moves into a new stage, and there are many stages left until 2020. The messaging coming out now tells us that the equity market is still at risk and next week look for risks as 1. Hong Kong and anti-government protest, 2 Italy and the government risk and 3. Iran as tensions arise on the oil sensitive Strait of Hormuz.
The US dollar gets stronger with the trade war and some weakness is expected in equity. This piece was sourced on CNBC, in interviews and comments on Fast Money. The Chinese are now accusing the US of playing politics in their back yard – so the US should be careful in Hong Kong.