Cartoon of the Day: Misplaced Fear

TRADE WAR RISK ON - Global equities are retreating materially today on fears of a commensurate escalation in the burgeoning trade war between the U.S. and China. Specifically, the Trump administration released a list of goods that it may target w/ sanctions totaling some $200 billion, while China’s Commerce Ministry described the move as “totally unacceptable bullying”, and promised to lodge complaints at the WTO without detailing what its retaliatory steps would be. Are trade wars bad for growth? Of course they are. Does anyone really possess a reliable framework for quantifying the ultimate impact ex ante? Probably not. This we do know, however: prior to the last Friday’s tit-for-tat escalation targeting $34 billion in Chinese goods and a list of [mostly] U.S. agricultural products, Export growth was trending lower in 70% of the near-50 economies we maintain detailed predictive tracking algorithms for, while 77% of Manufacturing PMI series were trending lower. This figures reflect data through MAY and JUN, respectively, and are supportive of our view that trade tensions aren’t the driving force behind Global #Divergences; they are merely adding fuel to the fire. Global equities peaked in late-JAN for a reason.