As the US-China trade war starts to get real messy, market observers warned investors that the conflict has in fact escalated to a level that one analyst said is an 11 on a scale of 1-10.
In a note to Wall Street investors on Monday, Cowen analyst Chris Kruger said that overnight, the Chinese showed their defiance by retaliating against new tariffs imposed by the US that is "designed to get the US President's attention." Kruger called Beijing's latest move as "massive," and emphasized that "on a scale of 1-10, it's an 11."
Analysts have raised the alarm about the perils of a deepening crisis caused by a US-China trade showdown, as Beijing launched its own offensive by hitting the US stocks, farm goods and Treasury yields.
A team of analysts at Morgan Stanley stressed that "investors must behave as if further conflict will take place this year." If an escalation does happen, the analysts project that the world will plunge into an economic turmoil in the next 9 months. "We take this literal message of tariffs very seriously. There is a pattern of responding to insufficient negotiation progress with escalation," the analysts disclosed.
The initial aftershocks after China announced it will no longer buy US farm products were clearly felt in the semiconductors and tech sector, including those with direct links to trade and bank shares, which are sensitive to interest rates.
The largest US banks, which include Bank of America Corp., JPMorgan Chase & Co., and Citigroup Inc., lost over 3% in pre-market sessions on Monday. Micron Technology Inc. was down 5.9% while Texas Instruments Inc. dropped 3.4%, Intel Corp. lost 3.6%. and Apple Inc. shed 4.4%, since May 20.
In a commentary, Ian Lyngen of BMO said that "The wait is over for those wondering how China would react to (US President) Trump's recent tariff declaration," adding that it only resulted to China deliberately allowing its currency (yuan) to devalue well beyond 7.0.
China allowed the yuan to fall sharply on Monday to its weakest in over a decade. And it declared that its companies have stopped buying American farm goods. Washington made things worse late Monday by calling China "a currency manipulator."
The China-US economic confrontation has reached a new magnitude of seriousness that won't be easy to reverse. And the apparent danger is that it is nearing a point where it creates a severe economic collapse.
According to National Securities Corporation chief market analyst Art Hogan, the worsening trade discord between Beijing and Washington "will certainly be bad for the US economy. How bad is almost impossible to calculate."
