China holding cards

Retreat on tariffs

In this report: 500 years of strategy, Trade charts, Gold and DOW commitment of traders, China halts trade.

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Views

Views are great to have, but toxic things to get married to. A view that buying the liberation day dip was crazy and that recession is imminent is THAT toxic view which doesn’t ‘currently’ pay.

The market rallied this past week on the back of behind-closed-doors optimism from Bessent and a surprisingly bullish reaction to Tesla’s weak earnings. Friday, the rally looked to pump again into the close. The White House’s messaging on China grew muddled, yet there was no flinching from S&P500 futures. There is more upside to come. If there is a walkback or resolution to U.S and China, there will be no upper bounds for US equities.

ESM25 Futures. 30min bars. WVWAP.

High-frequency data hasn’t yet caught up to the trade damage now in motion. Metrics like PPI, CPI, and PCE remain lagging, but the deterioration is inbound. Given container shipping times from Hong Kong (30 days to LA, 45 to Chicago or Houston), we can expect rising input costs and manufacturing weakness to start showing in data from May 7 onward, stretching through June.

Source: Apollo Academy Research

Markets don’t seem to be pricing this in. Perhaps because Jerome Powell is also not pricing this in. What is priced in is ‘smooth de-escalation’, a full walk-back of tariffs, encouraged by Trump’s pause last week. I’ve sat out many dips over the past 8 years that led to Fed Put-fueled rallies. But of all of them, this is the one that makes me feel most seasick.

What is getting priced in with little doubt, is DXY weakness.

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