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Bitcoin (+7.9%) and US 10Y Treasuries (+1.3%) SURGE while US stocks (-2.0%) TUMBLE on President Trump’s abrupt escalation of a trade war.

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President Donald Trump abruptly escalated his trade war with China

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According to Trump’s tweet, a 10% tariff will be imposed on $300 billion in Chinese goods on Sept 1, and the tariffs can be raised beyond 25%.
The 25% tariff already imposed on $250B in Chinese goods will remain in place.

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What’s the reason?

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According to Trump’s tweet, the US representatives have just returned from China, where they had constructive talks having to do with a future trade deal. Trump said: “We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing.”

State-run Chinese media called the Shanghai talks “pragmatic.”

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How did the financial markets react? What does it mean for future prices?

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• There is certainly a flight to safety at work now.

• Trump’s escalation of a trade war wasn’t on anyone’s radar and hit the markets by surprise.

• Now we see a complete re-pricing of expectations surrounding the trade war.

• It’s outright negative for stocks. Investors flee into safe-haven assets, which could be seen by market price changes following the news announcement:
  

• The S&P 500 declined by 2.98% due to investors selling US equities to buy 10-year Treasuries and gold futures.

• The prices of the US 10-year Treasury notes surged by 1.30% to 128.8 — the highest price (the lowest yield) since 2016.

• Gold futures on CME spiked by 2.51% to $1,436.0 — the highest price since 2013.

• Bitcoin IS SURGING +8.04% on the news. The chart shows that traders are increasingly using Bitcoin to hedge against macroeconomic and geopolitical risks.

• Apple Inc.’s stock declined by 3.65%. More than 20% of Apple’s revenue comes from China, and it seems like the market is pricing in lower sales forecasts for Apple over the next quarter. The RSI indicator for the AAPL stock is heading down.

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What effect will tariffs have on the US economy?

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Tariffs are taxes that a government levies on imported goods. Tariffs will reduce the demand for Chinese goods in the US by increasing their prices above the free trade price.
The economic impact is going to be harmful to both countries. However, the economic impact for China is going to be worse, as compared to the US.

When the 10% tariff is imposed, the Chinese businesses are more likely to decrease prices for their goods to retain their market shares. This reduction in prices for some products will effectively lead to a redistribution of income from China to the US. The prices for the end consumers in the US might not change, while the profit margins of Chinese business will decline, and the revenue from tariffs to the US government will rise.

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Is Bitcoin a true safe-haven asset?

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Looking at this chart gives me an increased conviction that Bitcoin is perceived by traders as an increasingly safe-haven asset to hedge against macroeconomic and geopolitical risks.

It is different from other safe-haven assets like the US Dollar, Gold, and the U.S. Treasury notes.

Investors perceive Bitcoin as a true hedge of Black Swan events, particularly events which lead to the broad market declines. This becomes reasonable if we think about the design philosophy of Bitcoin created to function without any centralized institutions or trust.

When investors foresee a risk of a failure of major financial institutions or political institutions and policymakers, Bitcoin surges in price.

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What’s the forecast for Bitcoin?

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We expect the equity markets to continue declining, which will be a strong catalyst for Bitcoin price appreciation over the near-term. Bitcoin has broken its significant short-term resistance at $10,000, and the trend is gaining momentum upwards.

Technically, based on Bitcoin trend analysis and the analysis of chart patterns, the Bitcoin price may reach at least $12,000 over the next week, representing a 15% upside potential.

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