We enter a new week with all eyes on the growing tensions between the world’s two biggest economic nations, which caused US stocks markets to plunge at the end of last week. The calm in volatility and never-ending rise in risky assets was upset abruptly by President Trump’s announcement of plans to impose additional 100% tariffs on Chinese exports. This came after a volley of trade measures by China that expanded its export controls on rare earths and related technologies, while also imposing fees on American-owned ships docking at Chinese ports.
Crucially, these new measures by both sides won’t be imposed before at least November 1 and are seen as trying to exert leverage ahead of a face-to-face meeting between Presidents Trump and Xi in South Korea at the end of this month. China is deemed to be endeavouring to turn the tables and create a more level playing field with increased bargaining power. We expect the war of words to remain hot, having hinted previously that there has been an eerie sense of calm in recent weeks, with an increasing ‘wall of worry’ evident. But we will also be monitoring actions rather than words, in what seems like classic, ad-hoc trade policies and announcement from the Trump playbook.
An environment of high equity valuations, ongoing geopolitical risks and increased uncertainty over the pace of Fed easing had seeped into markets. The big bearish engulfing weekly candles in US stock indices need to be watched as we kick off the earnings season with major US banks reporting this week. Bitcoin too suffered, in what some are calling a ‘black swan’ event during the ‘largest liquidation in crypto history’ as dozens of so-called altcoins saw almost total wipe-outs. This kind of price action is certainly signalling previous complacency, as fears of an AI capex bubble grow louder. The circular financing flywheel has got our attention, so too that fact that the 10 biggest US stocks, eight of which are tech megacaps, now account for close to 25% of the entire global stock market.