Investors frightened by the escalating Sino-US trade war….

Investors were fairly sanguine about Trump’s tariffs plan until China retaliated. Now, investors are assessing the risk of an all-out economic battle and they don’t like what they are seeing.

First, investors scramble to ‘de-risk’. This is to protect all the gains accumulated from 1Q’s rebound. Second, the more bearish inclined traders are shorting instruments that are expected to suffer from fallout, such as Apple, Caterpillar or Soybeans (see all below). A lot of these instruments/commodities depend significantly on China.

Earlier, I expected volatility to remain elevated. This view remains intact. The question is how far the equities will fall from here. For the S&P 500 Index, near-term support is noted at 2,750-2,800; while for Dow its short-term technical support is at 25,000 (see Featured Chart). In the UK, downside support for the FTSE 100 Index is found at the psychological 7,000 level. Overall, unless a deal of some sort is agreed, expect more de-risking activities in financial markets.

 

Apple

Caterpillar

Soybeans

 

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