China’s retaliation

US equity markets continued last week’s sell-off into Monday. However, there was a relief rally yesterday as the S&P 500 (SPY) gained 0.80%. Apple (AAPL), which had plunged on Monday after the Supreme Court ruling, recovered some of its lost ground and gained 1.6% yesterday. NVIDIA (NVDA) and Advanced Micro Devices (AMD) rose 4.1% and 2.3%, respectively. Microsoft (MSFT) also gained 1.1%.

After China’s Retaliation, President Trump Might Tighten Screws

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President Trump

Meanwhile, after China retaliated against US tariffs, we could see President Trump tighten the screws further. Reuters reported that “President Donald Trump is expected to sign an executive order this week barring U.S. companies from using telecommunications equipment made by firms posing a national security risk, paving the way for a ban on doing business with China’s Huawei.” Separately, Reuters reported, “A group of President Donald Trump’s fellow Republicans in Congress introduced legislation on Tuesday intended to prohibit anyone employed or sponsored by the Chinese military from receiving student or research visas to the United States.”

Other ways to retaliate

After imposing tariffs on billions of dollars of each other’s goods, the United States and China might look at other ways to retaliate as both the sides show no intention of backing away from the trade spat. China went ahead with increasing tariffs on US goods despite President Trump’s warning.

To be sure, Huawei was a flashpoint in US-China relations after Huawei’s CFO was arrested in Canada. China retaliated by arresting several Canadian citizens. While markets bounced back yesterday, it seemed like more of a relief rally. The prospects of further escalation in US-China trade war is still a potent risk for markets. If the trade war escalates further, it could fuel risk-off sentiments, and markets could come under pressure.

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