The restrictions on rare-earths exports on Friday, prompting the US to resort to its only playbook (yes tariffs!) has markets in turmoil. With this, the uneasy diplomatic truce between the two largest economies is all but over, even if POTUS says "it will be fine". While it's difficult to estimate what prompted the move by China, on surface it looks like inflicting damage on the opponent, even if it means hurting themselves through elevated tariffs and likely denial of access to high-end technology (hardware and software).
The market reaction on Friday (10th Oct) was generic (sell now, ask questions later) rather than specific. Yet another "flip-flop" by the US is driving a rebound this morning - tempting as it may be to "bottom-fish" and "buy-the-dip", we see more posturing rather than an instantaneous resolution as the likely near-term path, driving volatility higher and opening up downside risk for prices.
The trend appears dented rather than damaged for now but the fissure is deep enough to risk a trend reversal with major indices dangerously close to breaking the critical 50 day moving average, a move similar to Feb '25 jitters. We have added protective hedges to our equity strategies for now. While a generic sell-off also threatens Dollar diversifiers, Gold and Bitcoin, we expect these to outperform.
The playbook for investors will be premised on (1) price action defending critical moving averages, currently in balance (b) de-escalation of renewed trade hostilities, unlikely in the short-term, in our view and (c) earnings season. With volatility expected to rise further, there will be opportunities in structured products in coming days and weeks - but unlikely on Monday the 13th of October.
Nasdaq 100 - Critical to defend 24000 level - 50dma has been a strong trend support - now potentially challenged. REBOUND ABOVE 25200-300 WILL RESTORE THE TREND
source: Trading View
S&P 500 - Critical to defend 6500 area - 50dma has been a strong trend support - now potentially challenged. REBOUND ABOVE 6760-6800 WILL RESTORE THE TREND
source: Trading View
Defensives - Revival Time?
source: Trading View
Gold vs. S&P - Outperformance Remains In Place
source: Trading View
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