LIVE MARKETS-U.S. market correction risks grow amid Sino-U.S. trade flare up
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U.S. MARKET CORRECTION RISKS GROW AMID SINO-U.S. TRADE FLARE UP
Stock markets seem to be largely shrugging off worries about trade tensions on Monday, but a larger than expected correction could be on the horizon for U.S. markets if hoped for near-term de-escalation on the Sino-U.S. front is not realized, Michael Wilson at Morgan Stanley said.
"Trade escalation with China was not on many Bingo cards before last week, but provided the catalyst for what appears to be the first meaningful correction to the new bull market that began in April," Wilson said.
Following a period of uneasy calm between the two economies, trade tensions flared up last week after China expanded its rare earth export controls. In response, U.S. President Donald Trump on Friday said he would impose 100% tariffs on China's U.S.-bound exports, along with new export controls on "any and all critical software" by November 1.
U.S. shares tumbled from near all-time highs on Friday, .SPX and Asian stocks slid on Monday, but U.S. share futures EScv1 are trading higher on Monday, suggesting some traders are betting on de-escalation.
While the set-up for a correction within this new bull market was in place given elevated systematic, retail and hedge fund positioning and valuation anxiety, the surprise escalation could potentially increase its magnitude given its close proximity to the quarterly earnings season, Morgan Stanley said.
With the U.S. government shutdown entering its third week, trade negotiations could be further complicated.
Among sector calls, Morgan Stanley strategists stick to their "underweight" rating on the U.S. Consumer Discretionary Goods sector due to its high exposure to China tariff costs.
(Kanchana Chakravarty)
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EARLIER LIVE MARKETS POSTS
EUROPE STARTS THE WEEK SOLIDLY CLICK HERE
EUROPE BEFORE THE BELL: SEE DIP, CLICK BUY CLICK HERE
MORNING BID EUROPE: EVERY TRADE CLOUD HAS A TACO LINING CLICK HERE
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