You already know the story.
Donald Trump has “succeeded” in starting a global trade war and although investors were more than willing to buy the dip in U.S. equities for three consecutive days following the worst start to a Q2 in 89 years on Monday, everyone ran fresh out of patience on Friday.
And it’s no wonder. The Thursday night escalation seemed even more puerile than usual and quite clearly represented Trump attempting to control any political fallout from China’s efforts to target the Midwest with their reciprocal actions. Recall this from Bloomberg:
China on Wednesday said it would issue 25 percent retaliatory levies on roughly $50 billion of U.S. imports, including soybeans, cars, chemicals and aircraft. These levies appear to be targeted at states, particularly in the Midwest, where Trump’s support is strongest. But, crucially, many of these states also have pivotal Senate and gubernatorial races in November. The economic blow from new tariffs could upend many of these races, potentially shifting control of statehouses and the U.S. Senate to Democrats.
Trump wants to stop that immediately for obvious reasons. It seems likely that he was caught off guard by China’s willingness to kick him square in the balls. As noted earlier, the risk now is that by suggesting the U.S. could ultimately aim for ~$150 billion in tariffs, Trump ends up forcing China to resort to “alternative” measures when it comes to responding because after all, at a certain point they’ll simply run out exports to tax:
And so, he’s going to take things up another $100 billion.
You know what’s coming…
Larry Kudlow’s efforts to allay fears fell on deaf ears Friday (his “magic” touch seems to have worn off in the space of 48 hours) and Steve Mnuchin didn’t help matters on Friday afternoon. Hell, even Trump suggested there could be “a little bit of pain” in the short-term.
Here’s the whipsaw in futures since China’s overnight retaliation on Wednesday:
Stocks of course crashed to close the week. The S&P fell below the 200-DMA (again) which has been key for the last two months:
Hell of a wild week – bookended by egregious losses:
Jerome Powell spoke about the economic outlook on Friday afternoon, but that wasn’t even close to enough to calm everyone down. Here are some headlines from that:
- POWELL: TOO EARLY TO SAY WHAT TRADE TALKS MEAN FOR OUTLOOK
- POWELL SAYS TARIFFS DISCUSSION AT RELATIVELY EARLY STAGE
- POWELL SAYS FURTHER GRADUAL RATE HIKES BEST PROMOTE FED GOALS
All of this came as the March jobs report was a dud.
Treasurys rallied with 10Y yields tumbling more than 6bps back below their 50-DMA and once again making 3% look far-fetched:
The dollar tried to rebound from the payrolls knee-jerk but that effort failed miserably by the end of the day:
USDJPY hit a day low in the U.S. afternoon as the risk-off move gathered steam:
Crude plunged on the same trade war jitters. “There is a risk for oil prices that China uses the bazooka option it has on U.S. crude oil exports [as] China is the main importer (after Canada) of U.S. crude oil, to the tune of about 400,000 barrels per day, Petromatrix said Friday, adding that “if China was to impose counter tariffs on U.S. crude, it would become quickly very heavy for the U.S. supply and demand picture, resulting in U.S. crude oil price pressure that would have a negative impact on global oil prices.”
Amazon was down sharply – Mnuchin’s comments probably didn’t help:
Finally, for your moment of zen, here is Sarah Huckabee Sanders explaining how 80% of women who try to make it to the United States from Central America are raped:
Press Sec. Sanders tells @jonkarl on Pres. Trump's comment yesterday about alleged rapes on border-crossing journey: "This is a well-documented fact…I believe up to 80%, in recent years, of women that are making that journey have been raped in that process." pic.twitter.com/uJjCZzje21
— ABC News (@ABC) April 6, 2018