Markets send clear signal to US and China on the trade war: You have ‘blundered into a minefield’

Markets send clear signal to US and China on the trade war: You have ‘blundered into a minefield’
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President Donald Trump President Donald Trump Joshua Roberts | Reuters The threat of the U.S.-China trade war escalating into something beyond nasty rhetoric and modestly effective tariffs for the most part has been dismissed by market participants and economists. But the idea that the dispute could turn into something more is starting to become reality. Tuesday’s relief rally on Wall Street notwithstanding, several under-the-radar indicators are pointing to the danger that a prolonged conflict could put a serious dent into the economy of both nations, and reverberate through a global picture that at best looks tenuous. Whether it’s increased expectations for interest rate cuts, decreasing expectations for inflation or queasy bond and stock market investors who are more aggressively pricing in slower growth, the message is being sent to the U.S. and China that danger lurks. “The bottom line here is pretty simple if not altogether positive: markets are signaling that both the US and China have blundered into a minefield,” Nicholas Colas, co-founder of DataTrek Research, said in a note Tuesday. “The risk of a US recession is rising, sharply and quickly.” Colas points to the various indicators on inflation, rates and concerns over the Chinese dumping U.S. Treasurys as indicators from the markets that the two sides should heed, much the same way as the Fed took cues that it was making a policy mistake by continuing to raise interest rates. “When markets signaled to [Fed] Chair [Jerome] Powell that he was on the brink of a […]

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