President Trump's decision to reignite the China-US trade war with new tariff threats is a game-changer. Something shifted over the weekend, and we doubt that it can be healed again overnight; as such, we see some risk of a downside correction in financial markets.
Beijing slashed its reserve requirement ratio ahead of today's opening bell, but mainland equities still plunged by more than 7% in Shenzhen. At the moment, there is precious little information being offered to Chinese investors, but we believe that the authorities will
step in with support one way or the other. The A-shares rally, after all, has corrected 50% since April and there is an old rule of thumb among Chinese market watchers: the faster it falls, the better it is ("better" meaning "more likely to attract significant intervention, of course).
Trump's fanning of the trade war flames not only derails some of the premium built into the expected conclusion of the deal, but also makes the upcoming G20 summit in Japan
that much more crucial given this latest injury to "high globalisation"-era pratices.
(We hear that Washington is preparing a massive broadside against the World Trade Organization, with globalisation itself set to bear the brunt of the impact.)
In terms of our own macro view, we're holding the line: it's all about The False Stabilisation
In terms of action, we are moving into capital preservation mode – long volatility with reduced exposure to globalisation-sensitive equities. For more on Saxo's Equity Outlook, be sure to check out Peter Garnry's latest update.