"China Strikes Back!
The Trade Wars begin… How Far will Trump Push It!
KR Opinion
Trade tensions with Mexico and Canada are escalating today, with Canada taking an unyielding stance against the United States. Their threats to cut electricity supplies to the US seem exaggerated, though there are numerous potential retaliatory measures they could implement. China has already begun implementing its retaliatory measures, adding another dimension to the growing trade conflicts. While these developments have introduced some market anxiety, their economic impact remains questionable. We must monitor whether these tensions intensify and continue to influence market sentiment.
These trade concerns and weak economic reports contributed to today's significant market reversal. After opening with substantial gains, markets declined toward the lower boundaries of the trading range we've observed over the past two weeks. Interestingly, we witnessed another substantial short-covering rally late in the session, recovering about 1% after the S&P had fallen roughly 2.5%. This recovery represents a meaningful bounce, reclaiming nearly half of the day's losses, and this upward momentum appears to be continuing in early overnight trading.
As anticipated, we're experiencing increased market volatility, likely leading to wider daily trading ranges. No economic data releases are scheduled today, so economic news shouldn't be a market factor. However, potential rhetoric between Mexico and the US could influence sentiment, though I don't expect this to have a substantial impact. Markets will likely remain primarily focused on employment and labor conditions, with key data coming Thursday and Friday this week.
We are noticing some sensitivity to economic reports, as the initial leg lower in the markets was partly driven by ongoing concerns about growth. The February ISM Manufacturing PMI was the latest report to play into these concerns, showing a mix of decelerating activity, rising prices, and weakening employment in the manufacturing sector. In response, the Atlanta Fed reduced its Q1 GDP forecast to 1.5% from 2.5%.
When ADP numbers and other economic data are released, Wednesday will likely serve as a pivot point in this pattern. Overall, expect volatility to remain elevated, and refer to the technical analysis section for more detailed guidance on market expectations. From a broader macroeconomic perspective, I don't foresee any significant developments that should materially impact markets.
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