Markets Steady Today. Bears Eye BABA's Jack Ma on Long Trade War Cost

09/19/2018 2:39 pm EST


Nell Sloane

Principal, Capital Trading Group

Stocks are steady Wednesday morning after rallying into headlines of China punching back at the U.S. with tariffs of 5% -10% on $60 billion of U.S. goods. China's new tariffs will affect 5,207 U.S. products and up to 95% of all U.S. exports to China, says Nell Sloane.

From what I understand, the tariffs are to take effect September 24, the same day the latest ones imposed by the U.S. are scheduled to begin.

China’s Ministry of Commerce said they were left with “no choice” but to retaliate.

Perhaps more concerning, and getting more play by the bears, were the recent comments made by Alibaba (BABA) chairman Jack Ma, who said trade frictions between the United States and China could last for several years and be a mess for all parties involved. He also made comments that allude to Chinese businesses perhaps moving production to other countries in the medium-term to get around the tariffs.

The question now becomes: will President Trump respond with another round of even larger tariffs? 

Bulls remain confident in the strong U.S. economic data, robust corporate earnings, and the market’s ability to shrug off negative trade headlines.

Keep in mind, U.S. corporate earnings growth will more than likely top +20% in Q3.

Further confirming the bulls’ position is the fact the CBOE S&P Volatility Index (VIX), which uses S&P 500 options to calculate expectations for volatility over the coming 30-days, has dropped -20% since July, meaning there just isn't the fear in the market most would expect.

In fact, BlackRock’s global risk indicator shows global geopolitical risk dropping over the past month, falling beneath its historical average and to its lowest level in more than a year.

As for today's U.S. economic news, we have updated U.S. housing starts and building permits, with the trade looking for a slight uptick.

Most all, eyes have started shifting to next week’s Fed meeting. Even though most everyone is expecting another interest rate hike, the meeting will also bring a Summary of Economic Projections and a press conference by the chair, which could fill in a bit of the color moving forward.

Most sources inside the trade are currently thinking there's a +80% chance for two more rate hikes in 2018, more than likely one in September and another in December.

Further out on the horizon the market seems much less certain.

At the moment most bets are being placed on the Fed either raising one or perhaps two more times in 2019. There are some insiders thinking the Fed could raise rates as many as three more times in 2019, but the odds seem to be less than 20%.



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