Nomura’s McElligott On Trump’s Trade Tweet: This Is Either ‘Epic Poker-Playing Or A Raging Miscalculation’

Predictably, US equity futures plunged out of the gate following Donald Trump’s extremely ill-advised decision to take out a weekend’s worth of pent-up rage on China.

On Sunday afternoon, Trump blindsided markets with a threat to more than double the tariff rate on $200 billion in Chinese goods if negotiations don’t produce a final trade deal in short order. He also suggested the US would soon go all-in, slapping duties on everything China ships to the US.

Read more: ‘No!’ Trump Ruins Your Weekend, Says He’ll Restart Trade War With China On Friday

S&P futures dove as much as 1.6% and Nasdaq futures fell even harder. The risk-off move reverberated through FX markets as well – the yen hit a five-week high.

Never one to be late to the party when it comes to providing real-time analysis, Nomura’s Charlie McElligott was quick to get his thoughts on the record.

“Either this is an epic act ‘rope-a-dope’ posturing and poker-playing from POTUS to collect a (self-perceived) ‘better’ deal ‘win thereafter — as the 500-handle rally in Spooz has given Trump enough confidence to absorb a market drawdown and again ‘lean-into’ what some in the administration believe is Chinese ‘slow-playing’ — all in an attempt to extract additional last-minute deal concessions after last week’s reported negotiation setbacks or [it’s] a raging ‘miscalculation’ with ‘vigilante’ markets”, Charlie wrote Sunday evening, in a truly poignant take on what looks to be a rapidly deteriorating situation.

This poses a considerable risk to markets given the signaling effect from US equities as the global risk proxy and, as we noted earlier, it comes at a delicate time just days after Jerome Powell sought to play down hopes for an “insurance cut” from the Fed.

“Asset managers and Systematic funds have gotten very ‘long’ over the course of the year”, McElligott warns, noting that the former has “accumulated ~$62B billion of US Eq futs YTD alone.” All told, the net long notional position across US equities futures sits at $123 billion.


Given that half of that was tacked on as stocks powered higher, it’s entirely possible that profit-taking could ensue amid worries that the US administration is on the verge of miscalculating in talks with Beijing.

“Those trades are obviously ‘winners,’ so an acceleration of profit-taking into a renewed trade war / growth scare is a risk that we could see aggressive monetization”, Charlie cautions.

As far as CTAs go, McElligott warns that while we’re still above pivot levels, that could change on a sharp move lower. To wit:

With systematic funds, we see potential CTA Trend deleveraging levels below market, but within reach if any de-risking were to accelerate dangerously (to partially reduce current ‘long’ built around the +100% signal generated at end Jan / start Feb): Current SPX deleveraging from CTAs would trigger around 2879, in NDX at 7578 and in RTY at the 1565 level–as all price signals would weaken from the current +100% down to +57%. 

(Nomura QIS)

Meanwhile, Charlie notes that SPX/SPY consolidated gamma will flip negative at “around” 2890, beyond which dealer hedging could exacerbate moves or, as he puts it, things “could get sloppy”.


All in all, Trump is playing with fire. He appears to believe he can secure whatever additional concessions Washington is after by way of one last, glorious bluff on the way to cramming a deal down Xi’s throat and declaring victory.

But if he (Trump) is wrong and it all falls apart at the last minute, Sunday’s Twitter tantrum may go down as a grievous miscalculation that further undermines the president’s claim to “legendary” deal-making prowess.


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7 thoughts on “Nomura’s McElligott On Trump’s Trade Tweet: This Is Either ‘Epic Poker-Playing Or A Raging Miscalculation’

  1. Well Republicans…still sitting on your thumbs? Hey Mitch! when is enough, enough? or are you going to sit and watch him bury Lincoln’s party?

  2. How dim can people be? Trump is front running his Tweets and making a fortune, The only question is who is making the trades, Ivanka or Jared?

  3. A little off topic, however, regarding our self indulgent president, can’t wait to see both of this clip in the same Election add, “we fell in love” and Otto Warmbier coming home in coma on a stretcher.

  4. Right now DOW futs down over 500. A few days of carnage will get has attention, as limited as it is. I hope they give him the finger and we have a dramatic downdraft, not that it would improve his calculative skills but it might for his wealthy supporters.

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