Well. While I was on a plane travelling to an exotic place, the markets finally delivered an overdue setback. I have been expecting a consolidation, and we probably got a bit more than most people wished for. Merely 24 hours before the event, I had my account manager contact me to say that I had a large cash balance sitting on my investment account and that I should consider putting it to work. Well timed. Cash isn’t trash; it provides optionality plus pays interest at the current world rate setting. So while my beta portfolio is certainly not enjoying a great end to the week, I have plenty of firepower to engage.
We all know the news. On Friday evening, Trump provided further detail on his earlier threat to impose “massive” tariffs on China—alongside new non-tariff measures—in response to Beijing’s newly announced export control framework targeting rare earths and magnets. Effective November 1st, the President stated that the US “will impose a 100% tariff on China, on top of any existing tariffs.” In addition, they “will impose export controls on all critical software.”
Markets got crushed, and it’s needless for me to summarise the impact here. Leverage clearly was applied too generously. You can see it across the multiple charts behind the paywall below. Where do we go from here? Many will argue that we have seen this film before. We threaten, then we find an agreement, and things can go back to normal. Trump’s threat is usually a negotiating tactic — a headline designed to shock Beijing and reassure domestic hawks, only to be quietly “reviewed” or “conditionalized” later.
I think we could expect the usual choreography with Bessent the saviour, “verifying” China’s policy actions, buying time, and the tariffs ending up more symbolic than real. Also important to keep in mind that back in April, the Treasury Secretary called tariffs at this level “unsustainable”. Putting it all together, the script of the usual Taco or watering down process is possibly going to be the expectation.
What if not? What if we are facing the tail event of a continued tension or escalation? I don’t think anybody is prepared for such an outcome. I think it’s probably a 15% probability with massive consequences. As for now, all of us will be observers of the game of political chess. None of us knows what will come. Should you react? Better than reacting is to now plan and prepare in order to stay in control as things progress. Further de-grossing is to be expected, but this market has shown the resilience to bounce strongly before, even more when you know that Trump will likely support it. More thoughts from me as we move along this new political episode, even though I am operating out of a different time zone for the coming week.
A reminder of a few thought pieces that were published this week. On France before Lecornu’s re-appointment, which is farcical, please read the following piece.
France - What's Next?
It was May 2017, when naive France entrusted itself to the care of a promising young man, the vaunted moralizer, the aspiring revolutionary, the new Robespierre. In Paris and its environs, they would have done better to read the biographies of France’s two sons. Robespierre came from the provinces,
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not free and incurs an additional cost. These are my momentum, reversal and intra-day models I am often referencing.
If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Let’s now read Macro D’s thoughts on developments during the week. In addition, you will find the updated chart pack of all 250+ charts across the global macro universe.
Have a wonderful weekend, recharge and let’s get ready no matter what comes next.