Tying official US statements with the market action is getting difficult as those statements are getting more and more contradictory and sometimes absurdly so. The S&P500 rallied up to 40points after Treasury Secretary Mnuchin said yesterday that a trade war was not likely to happen. Aluminium rallied and the ruble dropped 4% (with Russian stocks falling 9%) after D. Trump widened unilateral actions (otherwise called sanctions) against Russia on Friday, perhaps seeking to achieve what a 25% tariff diluted by wide ranging exceptions could not deliver. Aluminum price surged +7%, the most in two years and Rusal share price plummeted 50% in Hong Kong. The world’s top producer of metal outside China (which is also 50% bigger than Alcoa) was one in a list of 12 Russian companies the US hit with sanctions on Friday. A military escalation in the Middle East with the week end bombing in Syria was by far the most important news yesterday that was covered up in terms of the initial market action by this last iteration to “no, this is not a trade war” from Treasury secretary Mnuchin. John Bolton ( please check his background here ) which started as security adviser yesterday is not quite a proxy for goodwill in geopolitical games and rather a champion for unilateral and violent resolution of international differences. He will now be pulling the strings behind the US President and we should expect the unexpected... Bolton was the strong supporter of the weapons of mass destruction thesis that were never to be found ... This may help explaining the expedite justice to hit Syria and sanction Russia that cannot be defeated on the ground, not least because the President tweeted his wish to “Let others take care of this”. He is now considering more military options as well within the next 48 hours. Given that the (US stock) market would not have taken the Middle East developments lightly when combined with a harshening of the trade war rhetoric, it was time to back down on that “front” (until next time). Perhaps D. Trump should take off his glasses, leave the poker table and try a game of chess instead...or simply take a history book off somebody else’s shelf. The choice might instead soon be, rather than between “trade war or no trade war”, between “war and no war”. Financial and military and sooner than we might expect. Ray Dalio, the manager of the largest hedge fund in the world opined that “odds are rising for trade and other types of wars, adding that he was worried and forced to look harder at the question of where Donald Trump is leading us". Given China’s role in financing US deficits and its bond holdings, "one should consider the possibility that this trade war could also become a capital war," which "will be even uglier than a trade war", he said. In a pattern that has become familiar, the Dow Jones saw an 800 point round trip with the downside attributed to a delicate CBO report (which expects the deficit to climb to 5.5% from 3.5% and the debt/GDP to converge to nearly 100% by 2028 from 78% currently with a imminent rise in inflation likely as the economy is also expected to grow above potential for a while) and the New York Times reporting that the FBI has raided the offices of Trump lawyer Michael Cohen. By going from a sharp and broad-based advance to nearly negative territory, the s&p500 witnessed the worst last hour of trading in 6 and a half years and by the same token cratered the “smart money flow index” that we have started following in our Confidometer as an indicator of risk appetite. Teck needed to rally out of danger zone yesterday and did so moderately yesterday (despite Tesla closing lower). Some second thoughts about the situation in Syria may also have sapped investors of what little confidence they had gained earlier in the day... Bonds finished 1bp lower in the US with 10-year bunds closing unchanged at 0.50%. With the exception of the pronounced weakness in RUB and BRL, the dollar closed broadly lower (see FX report) and gold gained USD4. Oil rallied yesterday on easing trade war rhetoric after struggling last week as investors worried the tit-for-tat tariff increases between the US and China could impact wider economic growth. Cryptos continued to have a hard time yesterday. UBS chief economist noted that the US regulator added the endorsement of celebrities of cryptocurrencies as part of a fraud case, raising by the risks for those involved. India also banned any regulated entity from being involved in cryptocurrencies which could impair demand for cryptocurrencies at a critical juncture. 

After the US close… Nikkei 225 +1%; China +0.8%; S&P +22points

Chinese President XI offered broad promises to ease investment restrictions, especially for the auto sector, as well as opening for more foreign investment in shipping, aviation, financial sectors. He said China will increase transparency and strengthen property-rights. This is what D. Trump likely wanted to hear and could easily be spinned as concessions (although the time frame was not too concrete) and allowed the S&P to recover 1% overnight.

Zuckerberg will deliver his testimony today and will likely be grilled by Congress. 

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