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London Quick Take – 13 Oct - Market volatility returns with a bang as US-China trade war reignites
Note: This is marketing material. This article is not investment advice, capital is at risk.
Key Points
- Stocks stage fightback after tumbling on fresh trade war worries
- Trump threatens China with 100% tariffs on top of existing levies, sparking market turmoil
- Nvidia, Tesla and Amazon decline 5% on worst day for S&P 500 since April
- US earnings season gets into full swing this week
Love the smell of TACO in the morning: Market volatility returned with a bang on Friday, as Donald Trump’s threat to slap 100% tariffs on China next month sent a wave of trade war worry through global markets. The S&P 500 slumped 2.7% and the Nasdaq tumbled more than 3.5% as investors sought shelter. Tech took a thumping – Nvidia, Tesla, Broadcom and Amazon down about 5%, while Meta and Apple each lost over 3%. The Vix spiked above 21, the highest level since early August. European markets, only really catching the start of the selling by the close on Friday, were down about 1.5%. After a bit of a wobble gold surged again to a fresh all-time high on the flight to safety with Treasury yields dipping. We also saw a massive liquidation in crypto as risk sentiment soured - the biggest selloff ever I believe in nominal terms!
What happened? Trump on Friday said he will introduce new 100% tariffs on China on top of existing rates, in response to what appeared to be Beijing tightening the export of its rare earth metals. “Also on November 1st, we will impose Export Controls on any and all critical software,” Trump added.
Some to-and-fro over the weekend and Trump was walking it back a by Sunday when he said that “all will be fine” with China, signalling a willingness to negotiate. A 130% tariff on China would be very bad news for global growth, but we assume that it’s not going to get to that stage. And it looks as though there was some misunderstanding from the Trump side and subsequent clarifications from the Chinese on the export restrictions has softened his stance. TACO (Trump always chickens out), right?
As a result, things are turning a little more positive this morning. US stock futures rebounded as it seems Trump pulling his neck in a bit after Friday's tantrum and indicated a willingness to negotiate with China, easing a little of the market jitters. S&P 500 futures rose 1.3% and Nasdaq 100 futures increased 1.8%. European stock markets have climbed a touch early on Monday with the FTSE 100 up a quarter of a percent, with mining stocks Fresnillo, Endeavour and Antofagasta leading the gains, while the DAX was up 0.75% and CAC rose 0.9% this morning. With risk recovering oil prices are climbing following a 4% drop on Friday - but recovery seems to be contingent once more on Trump.
The assumption is that this is a kind of TACO situation, and the market should bounce back from this as it has done on multiple trade/tariff news flow in the past. It's looks and sounds and smells like TACO. However, given the recent rally, positioning was stretched any bad news is a cue to sell risk...which indicates the market is looking for excuse for a selloff. The extent of the selling could be the cue for the last bears to throw in the towel and see grind-up go to melt-up. Anyway it's Trump market and he does what he wants.
Looking around for anything that might have been oversold Friday...EV makers with a strong presence in China fell sharply – BYD, Nio, Xpeng and of course Tesla. Crypto took a hammering so Coinbase, Bitmine Immersion and Circle Internet were among the sharpest losers. They've been very popular with retail clients. Other momentum/meme names were sold hard – the likes of quantum computing and AI names, such as Rigetti and Palantir. Coca-Cola rose as consumer staples was the only sector of the S&P 500 in the green. Rare earth stocks such as MP Materials rose after Trump said China was holding the world captive with its export restrictions.
Finally, this morning Lloyds shares rose as it seems to have figured out the FCA motor redress implications and set aside an extra £800mn to deal with compensation claims, taking its total provision to almost £2bn, and providing a bit of clarify for investors.
For the week ahead – see start of US earnings season on Wall Street, a paucity of economic data due to the still shuttered US government, and an embarrassment of central bank speakers as IMF and World Bank meetings kick off. Watch Jay Powell on Tuesday as the main event on that front. Read the full week ahead here.
What happened? Trump on Friday said he will introduce new 100% tariffs on China on top of existing rates, in response to what appeared to be Beijing tightening the export of its rare earth metals. “Also on November 1st, we will impose Export Controls on any and all critical software,” Trump added.
Some to-and-fro over the weekend and Trump was walking it back a by Sunday when he said that “all will be fine” with China, signalling a willingness to negotiate. A 130% tariff on China would be very bad news for global growth, but we assume that it’s not going to get to that stage. And it looks as though there was some misunderstanding from the Trump side and subsequent clarifications from the Chinese on the export restrictions has softened his stance. TACO (Trump always chickens out), right?
As a result, things are turning a little more positive this morning. US stock futures rebounded as it seems Trump pulling his neck in a bit after Friday's tantrum and indicated a willingness to negotiate with China, easing a little of the market jitters. S&P 500 futures rose 1.3% and Nasdaq 100 futures increased 1.8%. European stock markets have climbed a touch early on Monday with the FTSE 100 up a quarter of a percent, with mining stocks Fresnillo, Endeavour and Antofagasta leading the gains, while the DAX was up 0.75% and CAC rose 0.9% this morning. With risk recovering oil prices are climbing following a 4% drop on Friday - but recovery seems to be contingent once more on Trump.
The assumption is that this is a kind of TACO situation, and the market should bounce back from this as it has done on multiple trade/tariff news flow in the past. It's looks and sounds and smells like TACO. However, given the recent rally, positioning was stretched any bad news is a cue to sell risk...which indicates the market is looking for excuse for a selloff. The extent of the selling could be the cue for the last bears to throw in the towel and see grind-up go to melt-up. Anyway it's Trump market and he does what he wants.
Looking around for anything that might have been oversold Friday...EV makers with a strong presence in China fell sharply – BYD, Nio, Xpeng and of course Tesla. Crypto took a hammering so Coinbase, Bitmine Immersion and Circle Internet were among the sharpest losers. They've been very popular with retail clients. Other momentum/meme names were sold hard – the likes of quantum computing and AI names, such as Rigetti and Palantir. Coca-Cola rose as consumer staples was the only sector of the S&P 500 in the green. Rare earth stocks such as MP Materials rose after Trump said China was holding the world captive with its export restrictions.
Finally, this morning Lloyds shares rose as it seems to have figured out the FCA motor redress implications and set aside an extra £800mn to deal with compensation claims, taking its total provision to almost £2bn, and providing a bit of clarify for investors.
For the week ahead – see start of US earnings season on Wall Street, a paucity of economic data due to the still shuttered US government, and an embarrassment of central bank speakers as IMF and World Bank meetings kick off. Watch Jay Powell on Tuesday as the main event on that front. Read the full week ahead here.