Via the excellent Damien Boey at Credit Suisse:
Investors are rightly concerned that trade wars are getting out of control. Within the space of a few days we have seen:
- US President Trump announce 10% tariffs on remaining Chinese imports, without giving Chinese authorities advance notice.
- The PBoC has allowed the USD/CNY to appreciate through 7, partly in retaliation for the US tariff increase.
- US President Trump has labelled China a currency manipulator.
These factors have compounded concerns that the Fed is not in control of the ship, because either it cannot do all the heavy lifting, or cannot respond quickly enough to volatile policy makers elsewhere. US 10-year bond yields are hitting new cyclical lows, and the yield curve has become much more inverted.
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