Over the weekend it looked like we may get trade peace in our time - but the market called Trumps bluff and sold off aggressively on Tuesday evening and we followed on Wednesday.
US 10 year T-Bills, which is what I have been watching, also sold off to trade down at 2.92%. This confuses as I was watching this for the bear to start, but only at 3.5%. But it seems it couldn't wait.
The trade war with China is hurting and while Trump is saying lots, the evidence on the ground does not support his Tweets and so markets are pricing in worsening trade wars. This will hurt the two largest global economies (USA and China) and the rest of us will suffer as a result. EMs may escape the worst of it, but we're not immune.
At the end of the day I do expect some sort of trade peace. This is Trumps style, bully and berate before finally finding a deal (we saw this with NAFTA and Canada / Mexico). But it gets real messy until the final deal.
So I expect weaker US markets into the new year, and frankly I expect the major indices to hit bear turf (20% off the highs). This is not a train smash and once the bear has been tagged markets will likely rally, helped with some trade peace.
Locally we will not escape the turmoil but our market is much closer to bear turf having tagged it 24 October at 43,822 (Top40). S&P500 is bear at 2,352 (latest close 2,700) and Nasdaq 6,152 (latest close 6,795). So about another 10% down from here. FAANGs are already in bear market as I mentioned last week.
This is not the end of the world, market go up and they go down. This sell off is not driven by a financial crisis as we saw in 2008/9, it is being driven by a bullying president and US markets that have gone without a bear in almost ten years (since lows of March 2009).
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