Welcome to phase two of the Trade War: The China retaliation – Adapt or bleed
|Are we officially out of the negotiating phase? China just torched that playbook, slapping a sweeping 34% tariff across all U.S. imports, effective the day after Trump’s “Liberation Day” duties kick in. The message from Beijing couldn’t be clearer: retaliation will be broad, fast, and relentless. And just like that, we’re back in a live-fire tariff environment — and markets are reeling.
S&P futures got smoked, down over 2% early Friday. Europe? Wiped out — Stoxx 600 down more than 4%, financials leading the bleed. This isn’t rotation — it’s liquidation. Risk is heading for the hills, and bonds are back in vogue, with 10-year Treasurys slicing through 4% like butter. Yields on bunds, gilts, and JGBs also cratering. It’s a full-blown safety grab.
And it’s not just the size of Trump’s tariff push that’s freaking the market — it’s the breadth and unpredictability. Wednesday’s rollout was way deeper than priced, and now he’s openly targeting drugs and microchips, taking aim at two pillars of global supply chains. Markets wanted negotiation. Instead, they got escalation — and it’s hitting where it hurts: earnings, inflation, and margin guidance.
Rate cut bets are ripping. The fed funds curve is now screaming emergency cuts — multiple by year-end — as traders front-run what they see as inevitable: the Fed stepping in to mop up the policy wreckage. JPMorgan’s 60% global recession call is grabbing headlines, but desks are already pricing that as baseline risk. Meanwhile, WTI just flushed below $63, a technical and psychological break that signals global demand expectations are getting yanked lower — fast.
Now comes the double trigger: NFP at 8:30am ET, followed by Powell at 11:25am. If payrolls miss, the rate cut narrative gets even hotter. If Powell shrugs, markets may tank again. If he caves and signals dovish — watch for a violent rip in rates and a whiplash in risk. There’s no clean way out here. This is a binary setup.
The bigger picture? This isn’t just another headline-driven selloff. It’s a macro regime shift. The illusion of tariff diplomacy is gone. What’s left is a highly reflexive, politically charged market environment where gold is rallying, defensives are catching bids, and Big Tech is getting repriced as a liability, not a safe haven.
Bottom line: the playbook from the last five years — long tech, long dollar, long U.S. exceptionalism — is getting torched in real time. Adapt or bleed.
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