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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

It not’s a huge stretch to compare the current investor situation to the eye of a hurricane.

The initial shock of the U.S.-China trade battle and the planned imposition of tariffs on Mexico are fading along with global economic growth, while investors look for fresh direction.

The equity market sell-off last week was surprisingly orderly, as noted by Bloomberg’s Luke Kawa, while asset prices re-valued lower for rising risks.

A big move in markets is likely in the weeks ahead, but it’s not necessarily downwards. A breakthrough in U.S. trade talks with China would cause a sharp upwards spike in equities and bond yields.

Unfortunately, though, diplomacy is not trending in the happier direction,

“Speaking on Sunday at the Shangri-La Dialogue in Singapore, Asia’s premier defense summit, China’s Defence Minister Wei Fenghe warned the United States not to meddle in security disputes over Taiwan and the South China Sea. On Saturday, acting U.S. Defense Secretary Patrick Shanahan told the meeting that the United States would no longer “tiptoe” around Chinese behavior in Asia. “Perhaps the greatest long-term threat to the vital interests of states across this region comes from actors who seek to undermine, rather than uphold, the rules-based international order,” Shanahan said.”

“China and U.S. clash again on trade and regional security” – Reuters

“China warns students, academics of risks of studying in U.S.” – Reuters

“China decries US tariff ‘coercion’ as trade rhetoric heats up” – Financial Times (paywall)

““While the white paper did not list any specific new threats, it showed an “alarming” amount of defiance.” – New York Times


Chetan Ahya, Morgan Stanley’s chief economist and global head of economics, believes investors are under-estimating the risks of a potential full-blown trade war,

“My recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions. Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook. .. we admit that the outcome is highly uncertain. However, if trade tensions continue to escalate, with the US imposing 25% tariffs on the remaining ~US$300 billion of imports from China and China responding with countermeasures, we believe that the global cycle will be at risk. We could end up in a recession in three quarters.”

“@SBarlow_ROB MS: “My recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions”’ – (research excerpt) Twitter

“Global recession fears grow as factory activity shrinks” – Reuters


Oil prices are arguably the most visible reflection of investor anxiety about trade and economic growth,

“Hedge fund managers have stepped up their sales of crude oil and refined fuels amid growing concerns about the outlook for the world economy and oil consumption. Hedge funds and other money managers sold 122 million barrels in the six major petroleum futures and options contracts during the week to May 28, the heaviest one-week selling since October 2018. “

“Hedge funds accelerate oil sales as economy worsens: Kemp” – Reuters

“@SBarlow_ROB Goldman Sachs: “We still see three key mispriced developments in the oil market: the Permian debottlenecking, the supply response of low-cost producers and the IMO 2020 shift in bunker sulfur regulation.” – (research excerpt) Twitter


Tweet of the Day:

Diversion: This New Yorker essay on what it’s like to be 93 years old was published in 2014 but new to me. Also one of the best essays I’ve ever read, “This Old Man: Life in the nineties” – New Yorker