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US stocks rebounded on Tuesday after tumbling on Monday. The selloff on Monday was due to Chinese retaliation after an announcement by President Trump that there will be new tariffs placed on Chinese goods. Trump apparently overrule his advisors in making the tariff announcement. Today, the Presidents National Economic Advisor Larry Kudlow was on the tape, saying the Chinese economy is in trouble. Sectors were mixed, led higher by Industrials, energy bucked the trend. US yields rebounded slightly but the rally was more of a dead cat bounce. Gold prices continued to move higher which helped buoy the metals and mining sector. The dollar was stable but continued to gain traction versus the Chinese yuan which could generate additional volatility for equity prices.

Trump Overrules Advisors

President Donald Trump overruled his advisors when he tweeted on Friday that he was levying another round of tariffs on Chinese goods and services sold to the US. Reports say that there were objections from nearly his entire trade team when Trump ordered the imposition of 10% tariffs on China’s remaining $300 billion of imports. Trump, in his decision, said China has not made good on a promise to buy American agricultural goods in large quantities, and as a consequence, he would impose the new tariffs starting September, 1.

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Chinese Accused of Currency Manipulation

The Trump administration accused China of being a currency manipulator.  China was accused and was exonerated in May but China was kept on the watch after it was last accused in May of 2019. The US Treasury must now work with the IMF to determine what steps will be taken next.  The potential penalties are mild when viewed against the tariffs and other restrictions have already taken against China.

White House economic advisor Larry Kudlow told CNBC on Tuesday the United States holds the upper hand in trade negotiations with Kudlow said that the Chinese economy is crumbling. It’s just not the powerhouse it was 20 years ago.

Morgan Stanley Predicts a Recession

Morgan Stanley believes a global recession will come in about nine months if the trade war further escalates through the US raising tariffs to 25% on all imports from China for 4-6 months. The current tariffs have put a dent in both US and Chinese economic growth. Morgan Stanley points to the decline in US manufacturing and services, which are forward looking indicators.

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