Trump just blinked - he had to - what now?

What's happened?

• Trump blinked overnight - pausing Tariffs for 90 days on all countries except China.
• Raised tariffs on China from 104% to 125%. The White House is isolating China. Very dangerous.
• Keeping a 10% tariff in place for all (?) countries.
  
• Sector-specific tariffs (steel, aluminium, autos) are still in place by the looks of it.
• The US Markets had two hours to respond, meaning they closed in a frenzy - S&P 500 +9.52%. NASDAQ up 12.16%. Dow Jones up 2952 points (7.87%)
• Australian SPI Futures up 490 (6.62%). We opened up 468 and are now cooling our jets.
• The excuse is to give time for negotiations - that's rubbish - Trump has been spooked by heavy selling in the long end of the US bond market. (More below)
• Policy on the run - Bessent says, "This was his strategy all along". It wasn't. He says Trump had used the tariffs to create “maximum negotiating leverage for himself” - that bit is true. It's still policy on the run. There are many more chapters to come.

Thoughts:

• It's about the bond market- Evidence of that are two quotes from Trump - "I saw last night that people were getting a little queasy. The bond market right now is beautiful". In other words, it's not. And it wasn't. I spent last night messaging until the small hours with the UK market about the rip-up in US long-end bond yields and the risk of a collapse of the US bond market.
• Another quote from Trump confirming the bond market driver for the change of policy - "Well, I thought that people were jumping a little bit out of line. They were getting yippie, you know, they were getting…a little bit afraid." A 'little' bit? 'Very' you mean.

• The bond market risk - The Financial Times was all over it last night. Someone, It looked like the Chinese or hedge funds (probably hedge funds, but the Chinese made a more clickbaity story) were selling worrying amounts of long-dated (10-year and 30-year) bonds - the 30-year bond yield has had an extraordinary rally in the last few days which has been described as dislocated - not logical. Bond yields the world over have been dropping in the face of the recession risk.
• Last night it was getting so bad the UK described the US bond market as threatening global financial stability.
• Japan and Canada were getting ready to step in to support the US bond market (they at least understood the problem).

When Canada and Japan say they'll support the US bond market and the UK says the US bond market sell off is  threatening global financial stability, you do something. He did something. He had to do something.

• Trump presumably understood the dire consequences of the world losing confidence in the US bond market. The bond market funds the US's $36 trillion in debt. If that gets sold off, the cost of funding the US debt goes up, and if it goes up too much, there's a tipping point. 
• Who was selling? It doesn't matter - If it was China pushing the bond market around then they now know how to get to the US. More likely it was hedge funds unwinding "basis trade" positions (look it up). Even if it was hedge funds, not China, China still now know how to get to the US.
  
• Playing with fire - The White House is trying to isolate and ridicule China - Bessent says, "You might even say that he (Trump) goaded China into a bad position. They responded. They have shown themselves to the world to be the bad actor" - That's not good. You don't ridicule China. Careful of what you wish for. 
  

Conclusions

• Recession Fear just peaked - For the moment. Goldman Sachs, for instance, just cut the chances of a recession from 65% to 45%. That's the message. Tariffs are not permanent, there is a good chance they will be negotiated away, in which case, China aside, the worst of the risk of recession is behind us.
• The Trump Put - I don't think there is one. Trump didn't ride in to save the S&P 500. He rode in not to have the collapse of the global financial system on his list of achievements. He didn't do this out of choice. He was spooked.
• The White House has singled out China - Very dangerous. Cornering a nuclear power (?!). Making them look stupid. Not sure the White House has thought that one out. It could backfire badly. Very badly. The Chinese own $800bn of US Treasuries. It would have been MUCH better to include them.
• We are not out of the woods on the main issue - the bond market. China now knows what to do to retaliate. They can also raise tariffs. The bond market issue could return.
  
• We are in the middle of a short covering rally - The US has had but a couple of hours of trade to respond. It was doing 200 miles an hour with its hair on fire. The open today is not the moment to buy. We need time for sober thought. Maybe this afternoon. Maybe tomorrow. We need time for China to respond. Tread carefully.
  

This is not about Trump, criticising Trump, changing Trump, being emotional about Trump – it's about exploiting the volatility (and opportunity) he is presenting. Some of you will just stand back. Some of you will be paralysed. We have to do something.

WHAT WE ARE DOING

I'll keep the specifics for my Members. But:

• With the US closing at 200 miles an hour with its hair on fire, there is a very good chance that by the time the US Futures market wakes up this afternoon, it will be less 'enthusiastic'. We are likely to drift from the open (we have), and the US futures are holding, not accelerating.
• China has not responded. They could do that today. They are very important to us even if the US thinks they can abuse them.  It's a significant risk/variable that needs to play out. We are about to find out how an adult handles a toddler...grab the popcorn but be warned - this might turn out to be a horror movie, not a Marvel Movie.
  

We were in 100% cash - by the end of today we won't be. 

We are buying what I consider to be the best risk-reward sectors on offer globally but not on the open. Emphasis on low risk rather than high reward. We have to achieve an annual return not a weekly return. There's no need to be aggressive. We will be keeping some cash in the back pocket to buy the US in a more sober moment.

Caveat - If this bond market thing blows up again - we'll be back in cash.

FOOTNOTE

I know we'll be sitting here in a week's time saying - "Damn, missed that one. It was so obvious. Why didn't I think of that?" If you know what that trade is, I'm all ears. Comment below.