Stocks closed off the lows — but it wasn’t a constructive close. We got fucking REKT yesterday and went lower again today. In no way are we set up wonderfully here for upside surprises. Case in point: NVDA. It has rolled over and steaming lower.
I am long SOXS.
Here are the recent headlines out of Trump’s China trade war.
President Trump says tariffs are an “excellent” alternative to a trade deal with China.
Trump’s remarks came hours before Chinese officials were set to meet U.S. trade negotiators later in Washington.
Asked if he would speak with Chinese President Xi Jinping, Trump says, “Well, he just wrote me a beautiful letter, I just received it, and I’ll probably speak to him by phone.”
China’s top trade negotiator, Liu He, will meet with President Donald Trump’s trade team on Thursday without the title “special envoy” for President Xi Jinping, a role he has held in previous talks.
The demotion suggests the vice premiere may have diminished authority to make concessions that could be key to striking a deal.
Goldman’s take.
1. We continue to believe the tariff rate on the $200bn tranche of tariffs is likely to officially increase to 25% at 12:01 a.m. ET Friday (in about 11 hours). However, we note that this is a slightly softer deadline than previously expected. According to the formal notice increasing the tariff rate to 25%, the increase will apply to goods that both 1) enter the US for consumption on or after 12:01 a.m. ET Friday, and 2) were exported to the US after May 10. In other words, at 12:01 a.m. Friday the tariff rate will technically be 25% but only for goods that leave China after that point. By contrast, in the formal notice implementing the 10% tariff rate last September, the tariff applied to goods that entered the US for consumption after the deadline and there was no similar “in-transit” exclusion (see Exhibit 1).
2. This technical detail might create a limited window for negotiations to continue before the US places Customs duties on imports from China. If the tariff increase technically goes into effect at midnight tonight, the duty collections might not rise for about two weeks, or whenever shipments leaving China on May 10 arrive at US ports. In our view, this means that trade negotiations are more likely to continue over the next couple of weeks than if the potential tariff increase in May was a “hard” deadline.
3. This nuance might also result in slightly less downside to sentiment regarding the US-China trade outlook than if 12:01 a.m. Friday was a “hard” deadline. That said, events over the next week could pose risks in both directions if the tariff increase takes effect on May 10. Even though we expect that talks might continue, the US Trade Representative’s office also looks likely to release a proposal to apply 25% tariffs on the remaining roughly $300bn of imports from China not yet subject to tariff if the May 10 tariff hike takes effect.
That’s the good news. There is some potentially worse news as Phillips explains below, and it involves an escalating tit-for-tat retaliation:
4. China would also likely move forward with retaliatory tariffs. China has already announced it will retaliate if the US follows through with its tariff rate hike to 25%. In September, China had announced tariffs on about $60bn of imports from the US at rates of 5%, 10%, 20% and 25%. However, China ultimately imposed the tariffs at a rate of 5-10%. In our view, Chinese retaliation could take the form of increasing these tariff rates (such as to 25%). In addition, China may reimpose additional tariffs on US autos and auto parts, which it has suspended since December 14.
The latest out of China’s mouthpiece.
My hunch is that nothing gets done until next week, maybe. Markets might start going down on Friday’s again and there’s certainly no reason to buy stocks now. However, Trump is a narcissist and is prone to grandiloquent acts of cowardice, in the face of trying to appeal to the public’s favor. I do believe at some point bears will get trapped, cornered, and killed. So keep those shorts tight and get ready to run back into equities.
Today I bought NUGT, sold DCAR, BEST and TEAM. Cash is ~55%.
Comments »
