{"id":18268,"date":"2019-05-25T01:05:31","date_gmt":"2019-05-25T01:05:31","guid":{"rendered":"http:\/\/thepatientinvestor.com\/?p=18268"},"modified":"2019-05-25T04:17:00","modified_gmt":"2019-05-25T04:17:00","slug":"sp-500-and-the-trade-war","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2019\/05\/25\/sp-500-and-the-trade-war\/","title":{"rendered":"S&P 500 and the trade war"},"content":{"rendered":"

We are now headed for a full-blown trade war. Donald Trump may have highlighted the issue but this is not a conflict between him and Xi — it should have been addressed years ago — nor even between China and the West. Accusations of racism are misguided. This is a conflict between totalitarianism and the rule of law. Between the CCP (with Putin, Erdogan, and the Ayatollahs in their corner) and Western democracy.<\/p>\n

Australia will be forced to take sides. China may be Australia’s largest trading partner but the US & UK are it’s ideological partners. I cannot see the remotest possibility of Australia selling out its principles for profits, no matter how tempting the short-term rewards (or threatened hardships). We have a proud history of standing up against oppression and exploitation.<\/p>\n

Disruptions to supply chains and supply contracts in the US (and China) are going to be significant and are likely to impact on earnings. The S&P 500 reaction is so far muted, with retracement testing medium-term support at 2800. There is also no indication of selling pressure on the Trend Index. Nevertheless, a breach of 2800 is likely and would warn of a test of primary support at 2400.<\/p>\n

\"S&P<\/p>\n

Falling Treasury yields highlight the outflow from equities and into bonds. Stock buybacks are becoming the primary inflow into stocks.<\/p>\n

\"10-Year<\/p>\n

However, corporate bond spreads — lowest investment grade (Baa) yields minus the equivalent Treasury yield — are still well below the 3.0% level associated with elevated risk.<\/p>\n

\"S&P<\/p>\n

Profits may fall due to supply disruption (similar to 2015 on the chart below) but the Fed is unlikely to cut interest rates unless employment follows (as in 2007). Inflation is likely to rise as supply chains are disrupted but chances of a rate rise are negligible. Fed Chairman Jay Powell’s eyes are going to be firmly fixed on Total Non-farm Payrolls. If annual growth falls below 1.0% (RHS), expect a rate cut.<\/p>\n

\"S&P<\/p>\n

This excerpt from a newsletter I wrote in April 2018 (Playing hardball with China<\/a>) is illuminating: “In 2010, Paul Krugman wrote<\/a>:<\/p>\n

Some still argue that we must reason gently with China, not confront it. But we\u2019ve been reasoning with China for years, as its surplus ballooned, and gotten nowhere: on Sunday Wen Jiabao, the Chinese prime minister, declared — absurdly — that his nation\u2019s currency is not undervalued. (The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent.) And Mr. Wen accused other nations of doing what China actually does, seeking to weaken their currencies \u201cjust for the purposes of increasing their own exports.\u201d<\/p>\n

But if sweet reason won\u2019t work, what\u2019s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it\u2019s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.<\/p>\n

I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It\u2019s time to take a stand.<\/p><\/blockquote>\n

Krugman (no surprise) now seems more opposed to trade tariffs but observes<\/a>:<\/p>\n

….I think it\u2019s worth noting that even if we are headed for a full-scale trade war, conventional estimates of the costs of such a war don\u2019t come anywhere near to 10 percent of GDP, or even 6 percent. In fact, it\u2019s one of the dirty little secrets of international economics that standard estimates of the cost of protectionism, while not trivial, aren\u2019t usually earthshaking either.”<\/p><\/blockquote>\n

Trump has to show that he is prepared to endure the hardships of a trade war and not kowtow to Beijing. But the chances of a reasonable response are unlikely.<\/p>\n

Men naturally despise those who court them, but respect those who do not give way to them.<\/p>\n

~ Thucydides (circa 400 BC)<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

We are now headed for a full-blown trade war. Donald Trump may have highlighted the issue but this is not a conflict between him and Xi — it should have been addressed years ago — nor even between China and the West. Accusations of racism are misguided. This is a conflict between totalitarianism and the … <\/p>\n

Continue reading “S&P 500 and the trade war”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,46,34],"tags":[4050,617,1229,2615,3010,3782,3458,3551],"class_list":["post-18268","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-deficit-spending-employment","category-us-canada-countries-regions","tag-bond-spreads","tag-ccp","tag-employment-growth","tag-paul-krugman","tag-sp-500","tag-tariffs","tag-trade-war","tag-us"],"yoast_head":"\nS&P 500 and the trade war - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"S&P 500 and the trade war - the patient investor\" \/>\n<meta property=\"og:description\" content=\"We are now headed for a full-blown trade war. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\/2009 and 2020 bear markets well ahead of actual events. He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-4KE","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":18373,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/11\/if-earnings-undershoot-stocks-will-fall\/","url_meta":{"origin":18268,"position":0},"title":"If earnings undershoot, stocks will fall","author":"Colin Twiggs","date":"June 11, 2019","format":false,"excerpt":"Annual employment growth is falling while average hourly earnings growth remains high. This is typical. Ahead of the last two recessions (gray bars below), average hourly earnings growth (green) held steady while employment growth (blue) declined. If annual employment growth (blue line on the above chart) falls below 1.0% then\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":61503,"url":"https:\/\/thepatientinvestor.com\/index.php\/2025\/04\/08\/trade-war-threat-to-markets\/","url_meta":{"origin":18268,"position":1},"title":"Trade war threatens markets","author":"Colin Twiggs","date":"April 8, 2025","format":false,"excerpt":"Summary Rising 10-year Treasury yields warn of a capital outflow from Treasury markets Donald Trump's threat to levy further tariffs on China risks an all-out trade war The Chinese yuan has weakened against the dollar The bear market continues I will be traveling over the next few days, and my\u2026","rel":"","context":"In "US & Canada"","block_context":{"text":"US & Canada","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/us-canada-countries-regions\/"},"img":{"alt_text":"10-Year Treasury Yield","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-04-08-10y.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-04-08-10y.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-04-08-10y.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":18287,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/05\/29\/market-uncertainty-is-likely-to-persist-as-u-s-china-negations-stall-bob-doll\/","url_meta":{"origin":18268,"position":2},"title":"Market uncertainty is likely to persist as US-China negotiations stall | Bob Doll","author":"Colin Twiggs","date":"May 29, 2019","format":false,"excerpt":"From Bob Doll at Nuveen: \"There have been several risk-off phases this decade, triggered by economic threats due to politically induced setbacks. However, the current sluggish global economy and weak trade, coupled with escalating trade tariffs and non-tariff barriers, is a worrisome combination. This is especially true because once protectionism\u2026","rel":"","context":"In "China & HK"","block_context":{"text":"China & HK","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/china-hk\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":22059,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/10\/17\/cold-war-2-0-confronting-china\/","url_meta":{"origin":18268,"position":3},"title":"Cold War 2.0: Confronting China","author":"Colin Twiggs","date":"October 17, 2020","format":false,"excerpt":"I was discussing Australia's current political tensions with China, with an old finance\/investment hand, Chris Evans, when he remarked on the coincidence that China had become far more aggressive in international politics at about the same time as the COVID-19 virus outbreak. My response: it is no coincidence. There are\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":22969,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/12\/01\/china-expect-protracted-war\/","url_meta":{"origin":18268,"position":4},"title":"China: Expect “protracted war”","author":"Colin Twiggs","date":"December 1, 2020","format":false,"excerpt":"China will continue its aggressive stance in international affairs, says Yang Jiechi, Director of the Office of the Central Commission for Foreign Affairs: \"We must start from a perspective of protracted war.\" China's top diplomat laid out the country's plan for foreign policy over the next five years in a\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":18333,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/08\/sp-500-short-term-versus-long-run\/","url_meta":{"origin":18268,"position":5},"title":"S&P 500: Short-term versus long run","author":"Colin Twiggs","date":"June 8, 2019","format":false,"excerpt":"The market is excited at the prospect of Fed rate cuts (in response to the US-CCP trade war), with the S&P 500 headed for another test of its earlier high at 2950. A Trend Index trough above zero indicates short-term buying pressure. Falling bond yields, however, warn of a flight\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18268","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=18268"}],"version-history":[{"count":5,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18268\/revisions"}],"predecessor-version":[{"id":18277,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18268\/revisions\/18277"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=18268"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=18268"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=18268"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}