Dow plunges as Tariff Man takes action

It was good while it lasted. The rally Monday on the back of the respite in the China-US trade war came to a crashing halt today after President Trump raised doubts that the two countries will be able to find middle ground by the 90-day deadline they have put in place this weekend. Trump called himself the Tariff Man in a series of ambiguous tweets where he repeated the threat of raising the tariffs on China from 10% to 25% if the two countries don’t end up agreeing on trade issues within the next three months.

Markets turned on full withdrawal mode particularly as resources, agricultural and tech companies could end up being severely hit if the Sino-US trade conflict escalates. The top three US indices all lost over 2% and the Dow sank almost 600 points during the day but managed to regain some ground in late trade. European markets fared slightly better but still ended up in negative territory as the China trade contagion spread. Wednesday will inadvertently offer some respite because stocks, bonds and commodity markets will be closed in the US in honour of former President George H.W. Bush who died last Friday.

Brexit wrangling keeps sterling under pressure

Meanwhile the UK markets were buffeted by Brexit news after a first in history – the government being found in contempt of Parliament over refusing to release full legal advice on its Brexit deal. The pound scraped the $1.267 level, the lowest in more than a year but recovered later in the day and it held up against the euro despite the chaos on the domestic political scene. The FTSE started the day lower and continued to decline as the Brexit drama unravelled and only gold and gold miners provided some optimism.

More volatility ahead

The emergency debate which was initiated by opposition parties looks like a stalling tactic as it means that the PM will not only have to publish the confidential legal advice she received on Brexit but also that the debate on accepting her current Brexit proposal which was supposed to start today will be delayed. Parliament is due to vote on the proposal on December 11 but there are no signs of support from any party for what is on the table. If the deal is rejected ministers will have three weeks to come up with an alternative plan on how to proceed with Brexit. This could end up with one of the worst case scenarios for the markets because the government has previously said that if the current Brexit proposal is rejected Britain would leave the EU without a deal. If that is the case, volatility will be almost a given.

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