The fear in the market is exploding.
The Dow Jones just fell nearly 400 points at the close.
The NASDAQ is down 96. The S&P 500 slipped 36. And we could easily see further downside as we near new 10% tariffs on $800 billion worth of Chinese imports by September 1, 2019. Oh, and global bond yields are back below 1.7%.
In fact, they’re now back below 1.63% as we near around round of 10% tariffs on $800 billion worth of Chinese imports. “A sharp decline in yields as the 10-year note falls under 1.65%. This is raising the ‘Fear Factor’ over the impact of the trade war on the economy,” Peter Cardillo, chief market economist at Spartan Capital Securities told MarketWatch.
Unfortunately, things could get much, much uglier by August 19, 2019.
The day the 90-day exemption will expire on certain export restrictions with Huawei. “A further extension appears unlikely given the U.S. government announced that federal agencies are prohibited from doing business with Huawei,” says Goldman Sachs, as quoted by MarketWatch. “Huawei sales outside of China will face risk immediately after Aug 19.”
That could lead to swift retaliation from China, and sky-high volatility.
Chaos Could Force the Federal Reserve to Cut Rates to Zero
As global trade tensions escalate, the Street is anticipating the Fed may need to act soon.
In fact, economists now see further reductions before the end of 2019, along with multiple moves in 2020 until it becomes clear they’ve reduced risks of a recession. That anticipation comes as Goldman Sachs reduced its GDP estimates by 0.2 percentage points.
Even Bank of America Merrill Lynch say they see a recession in the next 12 months.
“Slower growth and rising risks will likely impel the Fed to cut rates further,” UBS economists, as quoted by CNBC. “Although we saw little support from the [Federal Open Market] Committee for further cuts at the July meeting, trade developments should provide enough justification to cut in” September.
At this point, it’s all a wait-and-see. Hopefully, things won’t be so rough on August 19, 2019.