Tariffs’ Toll

U.S. stocks plummeted the most since March as investors fretted about what Trump’s tariff threat might mean for trade talks with China. Asian equity futures indicated the selloff would extend. There’d been a long stretch of calm and steady gains for U.S. equities, but, just like that, volatility returned. Perhaps traders should worry about a different set of numbers.

Lagarde’s Lament

Christine Lagarde thought relations between China and the U.S were getting better, and that their trade talks were crawling toward the finish line. “We hope that is still the case but today rumors, tweets and comments are not very favorable,” the IMF chief said on Bloomberg TV.  As for machines and quant traders, they’re striking a wait-and-see stance.

Record Defaults

This year is shaping up to be the biggest by far for defaults in China’s $13 trillion bond market, highlighting the widening fallout from the government’s campaign to rein in leverage. Companies defaulted on 39.2 billion yuan ($5.8 billion) of domestic bonds in the first four months of the year, some 3.4 times the total for the same period of 2018, according to data compiled by Bloomberg.

Clarida’s ‘Good Place’

Fed Vice Chairman Richard Clarida pushed back against speculation the central bank will cut rates to boost softening inflation. “I don’t think we’re at that place now,” he said, echoing Jerome Powell’s take that the recent dip in prices is transitory. He added that both the U.S. economy and monetary policy are in “a good place.” One bank that’s a lock to cut: the Reserve Bank of New Zealand, which is expected to cut interest rates today to fresh historic lows.

Who Will Pay?

Trump insists tariffs on Chinese imports will help the U.S. economy and be paid mostly by China. Economists would beg to differ. Just before the threatened levies are due to take effect, China’s top trade negotiator Liu He will head to the U.S. for high-stakes talks. Whatever happens, it probably won’t stop a historic shift that’s seen developing countries disrupt global trade.