Another day, another trade-related, risk-off trade in the global markets. All major equity markets are trading poorly today (Shanghai -1.5%, Euro Stoxx -1.3%, S&P 500 futures -0.9%), and term Treasury yields are down 4-5 bps on the day.  President Trump held a rally last night and projected an aggressive tone toward China, saying they “broke the deal.” He then told the audience not to worry and that “it will work out.” The Wall Street Journal posted an article last night presenting the reasoning of Chinese officials for the recent backtracking. According to sources “familiar with the thinking of the Chinese side,” Beijing interpreted recent statements and actions by President Trump as a sign the U.S. was ready to make concessions. More specifically, Chinese leaders viewed Trump’s badgering of Fed Chair Powell to cut interest rates and expand the Fed balance sheet as evidence that the president thought the U.S. economy was more fragile than he claimed. “Why would you be constantly asking the Fed to lower rates if your economy is not turning weak,” said Mei Xinyu, analyst at a think tank affiliated with China’s Commerce Ministry. The U.S. formally filed paperwork yesterday to raise tariffs from 10% to 25% on $200 billion of Chinese goods at 12:01 a.m. on Friday.

Jason Haley
Managing Director, Investment Management Group