One of the key drivers of markets (if not the key) is human behaviour. What we are seeing right now is a manifestation.

This the latest from GS:

Mr. B says Trump's threats are just a bargaining chip and there will be no trade war.

Maybe he is correct, but Trump has been underestimated every step of the way since becoming a contender for the presidency. So, I'm not dismissing his threats and remain alert to intensification moves in trade.

The WSJ is not dismissing the threats (bolding mine):

  • Global markets convulsed Tuesday after U.S. President Donald Trump called for further tariffs against China, the starkest sign yet that the threat of a trade war-once dismissed by many investors as unlikely-is rising again.
  • Chinese stocks logged one of their steepest declines this year, with the Shanghai Composite Index dropping 3.8%. Indexes in major exporters Germany and France slid, while the Dow Jones Industrial Average tumbled 1.5%, on course for its largest one-day fall of the month.
  • Meanwhile, the dollar rose and government bonds rallied, sending the yield gap between the 2- and 10-year Treasury notes to its narrowest level since August 2007. A narrowing yield gap often indicates a pessimistic outlook among investors.
  • Trade tensions have rattled markets repeatedly this year. But the market reaction on Tuesday suggests that investors are suddenly reassessing their appetite for risk, after having potentially underestimated the willingness of the world's two largest economies to fight in a manner that could lead to long-lasting economic damage, analysts said.

Here is the link to the Wall Street Journal for more, may be gated: