“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” – Donald Trump.
To us this proves a few things including Donald Trump does not understand both trade and how to carry himself as the head of the US but unfortunately I guess there’s no great surprises there.
History tells us in no uncertain terms that a global trade war is bad for both economies and stocks and will all likelihood lead to a recession.
Interestingly last night US stocks shrugged of President Trumps tweet with the S&P500 rallying +1.8% from its lows to close up +0.5% on the day. It feels like we’ve potentially seen exhaustion at this stage to the US tariff news, we should remember that US steel / metal producers have been rallying for weeks in anticipation of this announcement, it just wasn’t expected to be delivered in such a nuclear style manner!
We need to watch carefully for any rhetoric / action from Europe and in particular China moving forward and of course whether the US increases its list of targets for fresh tariffs – plus of course there are likely to be some exemptions within the US tariffs and it will be vital to see how broad they are. The US’s closest neighbour Canada currently looks to have the most to lose with a whopping 88% of their steel exports going to the US in 2016 – surely they are not Donald Trump’s real target.
Overall global stocks continue to follow our forecasted path which has basically been in play since mid-2015
. Let’s continue to remind ourselves how we see the market evolving both short and medium-term, before we look at the reasoning and of course potential pitfalls later:
- Short term – We are net bullish global equities targeting fresh all-time highs by many indices over the coming 1-2 months. We can easily see the ASX200 challenge the 6250 area minimum in March / April, a close over 6020 will reaffirm this view.
- Medium term – We still believe a greater than 20% correction will commence this year for global stocks, suddenly this now feels easy to comprehend as volatility rises within markets.
Below is “our best guess” of how US stocks will unfold between March & May, we have not changed the arrows in any way from recent reports. Amazingly / luckily the top and bottom of our first two arrows are smack on at this point in time, if we are correct stocks should be net higher over the next few weeks – it certainly didn’t feel like at times during the last 48-hours...
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