Trade War escalation today: some notes


The most awaited news on Wall Street today, the Powell's speech in Jackson Hole, was almost forgotten by investors and traders, due he didn't tell nothing new, but most because today the Trade War reached its peak of intensity. A round trip of attacks via tweets that ended with both countries, U.S and China, raising their tariffs, and with Trump ordering companies in his country not to have commercial relations with China and start looking for other countries (as if it were easy to find a similar market!). Wall Street plunges with all this news in a strong sell-off: the SP500 SPX closes -2.59% at 2,847.11

Some notes: 


- Whoever says that the world is not headed for a global recession, lies. It is unavoidable.
- It is no longer interesting to look at the inverted yield curve in the US on a daily basis, hoping to read that the risk of recession decreases: the Trade War is getting worse and has no solution in the short term. 
- The economy deceleration is global and many world central banks are already taking action, some strongly (Japan, Eurozone), others lukewarm (the US with the Fed).
- But, finally, the Fed can do little by lowering rates or steeping the curve if the war deepens even more. 
- Those who must decide this conflict seem misplaced. On the one hand, Trump, altered and impulsive, believes that with his tweets he can intimidate the Chinese, and they have already shown that they know how to counterattack. And Powell does not seem to have the necessary skills for the job, besides he does not know how to handle the many discrepancies between the Fed Presidents that make the Fed look very disoriented and especially slow. 


Powell again defrauds investors without any important decision during Jackson Hole speech. Same words, less action, nothing new.




More ideas:


- The Yuan will be the protagonist in the coming weeks. The Chinese government handles it, and at any time it can be lowered again. Today is already above 7 in its ratio with the dollar. Trump wants to do the same with the dollar but the Fed does not leave it. 
- China is the holder of the largest amount of US treasury bonds. If Trade War sharpens, they can think of starting to sell them massively in the secondary market, increasing their offer and lowering their price, or what is the same, increase their yield, which would be a nuclear explosion for the already giant U.S. public debt. But, also for the Chinese make this play also involves many financial dangers. 
- The Fed can weaken the dollar without rate-cuts, through some quantitative-easing QE: create dollars, buy bonds, accelerate the economy, and be very cautious with the inflation evolution. The formula was applied successfully after the housing crisis of 2008.
- Trump and his Trade War will have consequences on U.S. internal growth. Is illogical pretend to have strong growth, the stock market in all-time highs and a reducing fiscal deficit during a Trade War. Previous experiences suggest that the only reliable way to reduce the trade deficit is to push the economy into a recession. 
- So, if nobody favors, why both countries continue with this awkward trade war?