China said on Friday that it would retaliate after the US moved to increase tariffs on hundreds of billions of dollars’ worth Chinese products on Friday, effectively breaking a months-long truce and seriously complicating ongoing talks..
Following through on earlier threats by US officials, the US raised a 10 percent tariff on $200 billion worth of Chinese products, including electronics, clothes and toys to 25 percent, starting at 12:01 pm Friday Beijing time.
Global Times Today
The column title last week was Oil and Stock Prices Likely Topping. In closing we wondered how long it would take for the negative political mood to infect Wall Street. After a 1,100 point drop in the DJIA from May 1, we now know.
Amid massive optimism regarding stock and oil prices, this column has recommended caution. That prediction has now come true. Let’s take a look at just what has happened.
The top was Tuesday April 23 at 26,695. The low yesterday was 25,577. That is a drop of over 1,1100 points or 4.2%. After a 25% run-up this year that is not a surprising correction. But could this be something more significant? Watch the 200 day moving average at 25,419 for support or a breakdown.
This column (and many others) warned months ago that Trump’s ‘easy to win’ trade war would likely end badly/ See our opening for how this is playing out in China. The Democrat Congress is not likely to give Trump anything on his revised NAFTA deal. And despite Trump’s claims, NAFTA has generated a great deal more business than pre-NAFTA. He now threatens Germany which to be fair has far higher tariffs on US cars that we levy on German made autos. A tariff is a tax and will only increase prices for goods Americans buy.
Negotiating land deals for hotels and golf courses with his bull in the China Shop attitude may work behind closed doors. But when the reputation of an international politician like Xi is on the line, well, no one wants to appear to be appeasing Trump.
Now manufacturers are moving out of China, which may not be a bad thing. But it is also not likely to convince the Chinese to respect and pay for Intellectual Property.
Crude oil is testing its 200-day MA at $6089. Momentum is breaking down after the big move-up from $42. Energy XLE is below all four MAs as is XES Energy Service.
Remember that no stock rally has exceeded 10 years in time. We passed the 10-year mark March 9. 2019. Much higher volatility will likely drive prices higher and lower this month. But we may have seen an important price high resulting from increasing negative mood this month.