China hit back last night with $50Bn in tariffs against US exports like cars, chemicals and soy beans along with 106 categories of American goods that are exported into China and, more specifically, goods that are exported from Republican-dominated states, where lawmakers might be expected to have some influence with President Trump, presumably to get him to back down from the latest trade demands.
"China has never succumbed to external pressure – external pressure will only make the Chinese people more focused on economic development. China's attitude is clear, we don't want a trade war because a trade war would hurt the interests of both countries. As the Chinese saying goes, it is only polite to reciprocate." – Trade Minister Zhu.
“Only polite to reciprocate” is unusually dark and direct. Unlike the U.S. president, who salts his speech with off-the-cuff remarks about foreign policy, Chinese officials don’t usually digress with clever comments. Trump has undone years of hard-fought civility in discourse that was meant to avoid exactly the kind of economic catastrophe he is now causing.
Wei Jianguo, a former vice minister of commerce, said the key to understanding China’s response is “same proportion, same scale and same intensity. That means we will retaliate with the same strength,” he said. “Whatever the total value of trade the United States targets, we will target the same amount. If it’s in the form of tariffs, we will do the same.”
The markets are back up to our weak bounce lines*(see yesterday's report)*though I think we'll be using them as shorting lines this morning as the Dollar is recovering quickly, up 0.6% and that's bound to put a bit of pressure on the markets as they finally hit some resistance. Dow (/YM) 24,350 is my favorite short at the moment, with tight stops over the line and 6,850 on the Nasdaq (/NQ) will make a fun shorting line as well***.
Why short? Well, nothing at all has changed other than it's POSSIBLE that China and the US will have a trade agreement instead of a trade war but, other than that – all the other stuff that caused the market to fall off it's highs all month haven't gone away – Thursday's trade talk just made them worse and now they are not worse – they are the same – not better either.*
In yesterday morning's post, we played for the weak bounce back to 6,500 but we failed it intra-day, which kept us very skeptical of the low-volume "rally" the pundits were celebrating last night. As I noted in our Live Member Chat Room that back on the 23rd, regarding my comments from the Live Trading Webinar:
As I said yesterday, we will probably get a bounce due to China's no or mild response but that's only because China doesn't rush to respond to things.
We had the initial, small retaliation on the 27th and now we have round two that brings China's tariffs up to match Trump's but let's not forget there are 180 other contries that also may decide to place tariffs on American products in retailiation – this is just the effect of China joining the trade wars with our blowhard President.
And who benefits? Why, Russia of course, who have been seeking closer trade relations with China and now that Comrade Trump has single-handedly undone the relationship building we've done with China dating back to Nixon – Putin is happy to step in and fill the $50Bn trade gap as many of the things that will no longer be supplied by Trump Country can easily be produced in Mother Russa instead.
Robert Mueller needs to stop looking for evidence that Trump colluded with Russia on the election and start looking at the very obvious evidence that Trump is colluding with Russia to destroy the US economy, as well as our hard-won standing as the Global Leader – that ship has already sailed at the last G20 Meeting, where Trump disgraced us on the International Stage and now they are dismantling the economy and plunging the country into insurmountable debt and economic chaos.
Meanwhile, despite OPEC's lowest output in a year, Oil prices are tumbling back to $62.50 after that ridiculous pre-holiday run-up that also sent Gasoline (/RB) to $2.03 but back to $1.96 now – a drop of $2,940 per contract!
Oil Futures (/CL) falling from $65 to $62.50 is good for $2,500 per contract and, with over 500M FAKE contracts open at the NYMEX, we're talking over $1Bn lost so far this week – DESPITE Trump's rolling back the CAFE Standards (mileage requirements) on US Autos.
If $62.50 fails, look for /CL to test $60 (another $2,500 gain on the shorts) and for /RB to hit $1.90, good for $1,680 gains per short contract. Keep tight stops above and they are both great risk/reward plays.
Speaking of US Autos, good sales numbers rallied the market yesteray but, of course, March has 3 more days (10%+) than February – so of course we have stronger numbers!
Speaking of strong numbers, or lack thereof, depsite MASSIVE money printing and MASSIVE debt accumulation, Japan's Industrial Production numbers are still lower than they were 10 years ago. After falling 6.8% in January, the February figures only bounced back 4.1% and the year/year gain is just 1.4%, the wost level since October of 2016 and pretty much the opposite of the effect Abe was claiming just weeks ago.
This is the World's 3rd largest economy folks and it's stalling – it would be good to pay attention to these things! Failing Monday's lows (2,550 on /ES) or failing again at the weak bounce lines will lead us to add a layer of additional hedges as we prepare for the drop to S&P 2,400.
I don't think we'll toss off the escalating trade war and Trump's war on Amazon continues as well and, if he can go after them – who's next? One of the benefits of living and investing in the US is that you don't expect the Government to interfere in the oridinary course of business other than through the courts when they violate the rules but this corrupt, irrational, unpredictable, untruthful Administration has thrown out the rule book (and the rule of law) and, last I heard – the markets don't like uncertainty.
Let's be careful out there!