Trade talk shocks the markets, once again.

Trump has just announced that he is considering another $100bln in trade tariffs to put on China. This brought the markets down in overnight trading about 100 basis points (1%). This is not a new phenomenon, we have seen the market move higher and lower each day (and sometimes intraday) based on news on trade war talks. Trying to gather the signals from the noise is difficult with the news swirling around the hypotheticals of which companies and sectors are set to lose the most. There is a real danger associated with a trade war and it should be taken into consideration when investing, but taking from a realistic perspective.

The reality is, that the concept of a less friendly US trade environment has been priced in. The current volatility is coming from the talks of tougher trade turning into targeted threats, but what is to actually come of these threats. As we saw with the NFTA talks, there is a lot of tough talk going into the negotiations and then a slow and gradual retreat as time went on. This is a negotiating tactic we have seen from Trump over and over, set the talks up as if you don't need to be a part of them so the other side has to make concessions just to keep you at the table. We seem to be in this phase of the Chinese trade talks now.

​From the Chinese side, time is on their hands. With midterm elections coming in the US, any targeted threats towards republican districts in could see the Democrats take back one of the chambers and show that Trump is likely to be a 1 term president. At this point the Chinese can just make enough small talk and concession long enough to wait out the presidential term. If the opposite is true that the Republicans get a re-affirmation of their standing by Trump and his tactics, things could really heat up. In any case the near term threat seems heavy in words and light in action, so this volatility should be used as an opportunity to reposition assets.