(New York)

For most of this year and last, the idea of a nasty full-blown trade war was like a boogey man that stalked investors, but still seemed a slightly distant threat. That is no longer the case, as an ugly trade war has rapidly developed into the status quo. Accordingly, many top analysts, such as at JP Morgan and Nomura, are saying that high US tariffs on China are here to stay. Market volatility is likely to continue as new news continues to stream out.

FINSUM: There is a lot to worry about in this trade war, but one of our immediate, but less discussed, concerns is about the intersection of tariffs, the Fed, and inflation. The tariffs are likely to raise US inflation by boosting prices for goods, which could keep the Fed from hiking, trapping us in a difficult environment.

(Beijing)

China has a massive hoard of US Treasury bonds worth over $1.2 tn. Many have speculated that as part of a trade war with the US, Beijing may flood the market with these bonds in an effort to enforce pain on the US economy. Recent market data shows it is likely already happening. China recently dumped $20 bn of Treasuries, a move that cannot be accounted for as part of normal market flows. The move was China’s largest sale in more than two years. The sale came in March, just before US-China trade tensions were again heating up.

FINSUM: Our view is that China is more likely to threaten doing this and perhaps do some in small chunks than actually pull the trigger. However, even if they do, yields have fallen so far recently that it is hard to imagine they would rise much beyond where they were a few months ago.

(Washington)

The market shave been hoping, clinging, to the idea that the Fed will cut rates soon. Bond markets have all but assumed it with pricing, and even equities seem to favor the odds. However, the release of the most recent Fed minutes have all but put to bed those hopes. The notes clearly show that while the Fed is willing to leave rates where they are for some time, there is no appetite to cut.

FINSUM: One important caveat to these minutes is that the meeting was held just before the big blowup in US-China trade talks. At the time of the meeting, it looked like it would be smooth sailing to a deal.

(New York)

The retail sector had a terrible 2017, the “retailpocalypse”, only to recover and have a strong bounce back in the first half of last year. Now things are looking bleak once again. Top retailers like Nordstrom and Urban Outfitters have already fallen 25%+ in the last year. Each business has its own issues, but the general trend in the sector has been bearishness. Some may think with valuations very low it is a good time to buy in. Think again. Retailers are having to invest heavily to update their models and offerings in the face of digital disruption to the industry. Further, tariffs from the trade war will wound the sector.

FINSUM: The bruising period retail has been going through is not over and it does not seem like a wise time to invest.

(San Francisco)

Investors probably won’t see it coming, but big losses are likely on the way for FANG stocks. The bank says that the group of companies is about to be “smacked down” by regulators. Savita Subramanian, Head of US equity strategy at BAML, says that the risk for investors is heavily skewed to the downside. “These companies are about to be smacked down from a regulatory perspective … Look at the fact that Mark Zuckerberg was testifying before Congress a year ago. That’s exactly what all the financial CEOs were doing 10 years ago”. Subramanian likens the coming losses to what happened to financial stocks in 2008-2009.

FINSUM: We doubt any forthcoming losses will be Financial Crisis-like but the regulatory risk is surely a big one. Will new regulations be related to anti-trust or data protection? Or both?