The trade war is starting to remind me of the scene from the Austin Powers film starring Mike Meyers. The scene I'm referring to is the one in which Dr. Evil threatens the world with a giant laser beam unless the leaders of the free world pay him $1millon dollars. This figure is so low, that the leaders all laugh and his evil staff tells him it's not enough, so he changes it to $100 billion dollars. The question is, who is Dr.Evil, the President or China?
The latest in the tit for tat proclamations have the President threatening an additional $100 billion dollars in tariffs which China has already responded to saying the will retaliate in kind "until the end". We are coming to the conclusion in our research department that once all the posturing is done, this will be a negotiation and only a negotiation. During this posturing, however, we will see Nasdaq, S&P, Dow, and Russell volatility. The key is, the vol is not showing itself as much as it should in the treasury complex. Rates have fallen, but not at the rate of a real crisis. 10-year yields fell when the tariffs on both sides were first announced, below 2.75%, but have since risen back above 2.80%.
This morning's nonfarm payrolls number disappointed, but when you dig into the data, it was strong enough (with a touch of wage growth to it) to keep a 200K per-month-average going on job creation, so fundamentals remain strong in the economy. At the end of the day, it's not likely Dr. Evil will end up firing his laser. So, which one is Dr. Evil again?