U.S. Stocks Extend Rebound From Trade-Driven Rout: Markets Wrap
Comment of the Day

May 14 2019

Commentary by Eoin Treacy

U.S. Stocks Extend Rebound From Trade-Driven Rout: Markets Wrap

This article by Randall Jensen and Sarah Ponczek for Bloomberg may be of interest to subscribers. Here is a section:

“Investors are looking for opportunities to get into this market, and so far in 2019 there really haven’t been any ‘buy the dip’ opportunities other than last week,” Ryan Nauman, market strategist at Informa Financial Intelligence, said by phone. “And you’re also seeing President Trump confirmed a meeting with President Xi during next month’s G-20 summit, which provides some optimism that despite the increase in tariffs, negotiations are still ongoing.”

Even as investors pick through Monday’s carnage for deals, the trade tussle between Washington and Beijing is keeping markets on edge as traders try to gauge its impact on the global economy. On Monday, all three major U.S. benchmarks dropped more than 2% -- only the second time this year that’s happened -- after China targeted some of the biggest U.S. exporters in response to American tariffs. Trump eased concerns talks would break down when he said he and Chinese President Xi Jinping would meet at the G-20 conference in late June.

Eoin Treacy's view

Investors don’t believe a trade war is inevitable and still hope that a deal will be done sooner rather than later. The threat from that conclusion is the extension of tariffs from the original set of goods to all goods imported from China will have an inflationary effect which is not being priced in. That is not so surprising considering how wrong inflation forecasts have been over the last decade. Nonetheless, the risk of inflation from escalating tariffs is non trivial.

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