The Volatility Index (VIX) is exploding.
As the Dow Jones plummets 380 points this morning, the VIX is now above 20, sending investors into fear-based hedged bets including:
· The iPath S&P 500 VIX Short-Term Futures ETN (VXX)
· The ProShares Ultra VIX Short-Term Futures (UVXY)
· The VelocityShares Daily 2x VIX Short-Term ETN (TVIX)
All, as China retaliates against President Trump’s 10% tariff on $800 billion worth of goods.
Interesting to note, if that new tariff goes into effect on September 1, 2019, all Chinese imports to the U.S. will be subject to levies ranging from 10% to 25%. Not only could that cripple the Chinese economy, it could unleash a good amount of harm to U.S. companies, too, like Apple.
In retaliation, China has halted all imports of U.S. agricultural products.
“The leverage that China has is its large agricultural purchases,” Darin Friedrichs, a senior analyst at INTL FC Stone’s Asia commodities division, as quoted by Bloomberg. “This does affect U.S. farmers and the rural U.S. voting base that’s normally in support of Donald Trump. If they hit back before the election, that’s the obvious way to retaliate.”
China Also Allowed the Yuan to Sink to a Decade Low
Not backing down, China also allowed the Chinese yuan to sink to its weakest level in over a decade, as it looks to cushion the blow from all of the tariffs. In response, President Trump tweeted, “”China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation. Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”
Worse, Tariffs could Force the Global Economy into a Recession
According to Morgan Stanley, more tariffs could force the global economy into a recession.
In fact, according to a new report released today, “current tariffs, if implemented and in place for four to five months, would cause global growth to weaken to 2.8% to 3% despite lower interest rates from central banks around the world. If the U.S. were to raise the tariffs to 25% from 10% and hold them there for four to six months—and if China were to respond—the global economy would enter recession in three quarters.”