It was a hectic start of the trading floor in Asia, to say the least. The yuan is down -1.3% (as of publication date) and is now trading at the lowest level seen since the 2008 financial crisis - see chart below. There are two sources to the chaos of the market. (1) The complicated social situation now affecting Hong Kong is affecting perceptions of risk around the world; and (2) the Chinese government's decision to suspend ALL US agricultural imports by state buyers, a very aggressive decision as it exceeds the “eye for an eye” reaction that the Chinese leadership has been implementing so far, generating greater distress among Asian investors.
 The reaction of Latin American currencies has also been considerable, as might be expected under the new circumstances. The Mexican peso is trading at $ 19.5, down 0.5%, and the Korean Won is down 1.3%. Crude Oil (WTI) fell 1% more tonight, and US 10-year bonds are now trading at 1.77%. The 30-year bonds are recovering even more aggressively, now yielding 2.31%, an increase of more than one percentage point since news of Chinese retaliation hit markets. S&P futures are trading down 36 points at this time, now below the critical level of 2,900.
 So where do we go from here? Readers would probably agree with the statement that "we've been here before," which means that this episode could become just another mini battle in this ongoing conflict. But not completely, in our opinion, as there are some relevant differences here (compared to previous episodes of trade war). Specifically, the decision of the Chinese authorities to raise retaliation against the US they have been following so far (proportional retaliation) implies that the Chinese are in fact ready to REALLY fight Trump (whatever the cost) if circumstances force such a scenario.
 We have often argued that President Trump must have a stable economy and financial markets to win reelection, as the next election promises to be very competitive - due to the impressive levels of polarization that are now present in the US. In other words, if we assume that Trump does NOT want to be remembered as a “one-term president,” then this dilemma should be resolved soon, as we believe the Chinese want a deal. The real problem here is that every time this conflict escalates, it becomes even more complicated to retreat and save yourself at the same time.
 We believe that if the US decides to retaliate for the newly announced Chinese retaliatory move, the US will have no choice but to implement a 25% general tariff on all Chinese products entering the country. We see no possibility that such a decision would not bring the world economy to its knees, mainly because of the rapid and virulent effect that a change in financial conditions now has on the real economy (because of globalization, social media, and the continuing rise in relevance of consumption in the growth matrix of the developed world).
 We stop trying to predict what the next decision of the White House will be. Therefore, the use of a binary scenario analysis becomes mandatory. If the US and China insist on this path of incremental retaliation, the world economy will go into recession by 2020, and the SPX (S&P 500) will test the 2018 lows - see chart above. We also believe that the DXY (dollar index against a basket of currencies from US partner countries) would recover further (north of 100) if this very pessimistic scenario materializes, with the emerging currency proving to be one of main casualties of this increase in the volatility event. We will see Fed cut rates at 125 basis points from now until the end of 2020 if this aggressive trading war environment persists. In this scenario, we see the US 10-Year Bond yield at 1.25%.
 If we get more positive headlines about the ongoing negotiations and the two countries start to show more pragmatic positions, the Fed is likely to cut rates by 75 basis points from now until the end of 2020, but the risk would be that the Fed would cut less. , as the US economy, formerly the components of the trade war, is booming, and should continue to do very well unless someone or something spoils the party. If we achieve this benevolent scenario, we will have: (1) investors willing to maintain their equity exposure, as dividend yield remains higher than the fixed income yield that the developed world is offering, (2) dollar weakness with less aversion to risk and a persistent high current account deficit in the US, and (3) superior performance of



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