- Cross-asset market strategists are warning investors about the turmoil that has spread over the past few weeks will rage on as President Donald Trump's trade war with China enters new territory.
- Referring to the strength of the US dollar, a currency strategist told clients: "More losses are likely in the coming week as investors and central banks become more concerned about the recession."
- The escalation comes when equity investors handle the fallout from a reverse return curve, a signal from the Treasury market often associated with economic recession.
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Stock market investors got a new blow late in the week as US and China's trade policy entered a new territory and initiated fluctuations in the wilderness market.
As both nations impose fresh rounds of customs and save an already vulnerable market, strategists warn that turbulence may be far from over.
- After the financial markets closed on Friday, President Donald Trump tweeted that his administration would increase tariffs on Chinese goods.
- It was a response to China unveiling a fresh round of $ 75 billion US goods.
- Trump said that the United States is set to raise tariffs for around $ 250 billion in Chinese imports to 30% from 25% from October 1, and to increase US $ 300 billion in Chinese goods to 15% from 10% from September 1st. .
- During the trade session, US stocks fell on separate trade-related tweets Trump fired, urging US companies to "start looking for an alternative" to do business with China.
- The US indices all fell by more than 2%, while the Dow Jones Industrial Average plunged by more than 600 points.
It all pushed the trade war between the world's two largest economies to "new heights" on Friday, said Kathy Lien, a currency strategist at BK Asset Management in New York. While stocks were selling, US dollars were hit particularly hard by all the major currencies, she said.
"More losses are likely in the coming week as investors and central banks become more concerned about the recession," Lien said in a note to clients late Friday, adding that she had observed "full-blown" risk reporting in the currency markets.
The latest trade development comes at a good time for economic growth in the United States and around the world. The most closely observed segment of the Treasury yield curve was reversed earlier this month for the first time since 2007, just before the financial crisis, and the US industrial sector has weakened significantly.
"With the ongoing US-China trade conflict, we do not consider the current environment to help us take on greater risk," Mark Haefele, chief investment officer at UBS Global Wealth Management, the world's largest wealth manager, wrote in a note to clients on Thursday just before the last toll escalation.
Heavy investor sentiment is the concern that the global downturn in the industry will "expand and deepen," Haefele said, along with the concern that "President Trump is willing to push the US economy into a recession to meet its commerce. "
"The main risk for the market is politics", not monetary policy, said Putri Pascualy, CEO of the investment firm PAAMCO Prisma.
Read more: BMW, Daimler and other car shares crash after China announces a 25% tariff on cars made in the United States
Still, many market analysts are encouraged by some economic indicators they say will curb blows and trading shares.
Vito Racanelli, senior editor and market research analyst at Fundstrat Global Advisors, pointed to modest strength in New York's production index, along with retail sales and other quarters without productivity beyond the farm.
"With all the bad news we've seen, I still think this looks like the market's resilience," he said.
But one unpredictable US leader who struck with the Federal Reserve (in a unique way) during a financial downturn has put many at risk.
Investors worldwide raised $ 14.5 billion from equity funds for the week ending August 23, according to a Deutsche Bank analysis. Bond funds and money market funds, typically seen as more stable investments in uncertain times, had a continued inflow of $ 15 and $ 33 billion, respectively.
BK Asset Management's Lien expressed it more clearly in its client note: "China and the United States have made it clear that they will not fight back easily and the rest of the world will be victims of this intensifying trade war."