Chief economist update: Countdown to T-day

It's now 8pm in Washington. That's four hours until T-day (tariff Friday) - the time when US tariffs on about US$200 billion worth of Chinese goods are set to increase to 25% from 10%.

Investors around the globe are holding their collective breaths as Chinese and American negotiators try and work out a last-minute deal.

While equity markets are hoping for the best - a deal struck at the 11th hour whether lasting or another kick of the tariff can a month or two away - but are prepared for the worst - they've lightened up their equity allocations (as evidenced by the decline in most benchmark equity indices across the planet heading into T-day) and switched to the safety of the bond market.

So far, it's still good. Despite recent selling, equity markets are still up this year to date. The S&P 500 remains 14.5% higher since the start of 2019; the Euro Stoxx-50 is up 11.6%; the FTSE-100 is 7.1% higher; the Nikkei-225's 6.9% in the black; the S&P/ASX 200 index is still 11.8% on the up; and China's CSE 300 index remains close to a bull market - up 19.6% - in spite of the heavy sell-off over the past few days.

But as Murphy's Law dictates, "anything that can go wrong, will go wrong".

Not only could it go wrong but it could escalate. This is because if the US and Chinese trade delegations can't agree to agree to compromise on their respective demands, Trump has already started the paperworks to impose new 25% tariffs on an additional US$325 billion worth of imports from China.

Bloomberg reports on the consequence, writing: "Imposing tariffs on all U.S/China trade would reduce global gross domestic product by 0.5% by 2020, Oxford Economics chief U.S. economist Gregory Daco said in a research note Thursday, adding: "if the bilateral tensions spiral into a full-blown global trade war, we would expect this to trigger a global recession."

And that's only with the Sino-Yankee trade war. Recall Trump has put the Eurozone and Japan on notice.

War - in any form - is really good for "absolutely nothing".

Timecheck: It's now 9pm on Thursday in Washington - 3 hours to go T-day.

Tick, tock.

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