Market jitters stemming from an escalated trade fight could be so bad that is could send the S&P 500 in a correction, wrote UBS.
For its part, Bank of America Merrill Lynch said its bear case includes a U.S. tariff hike and a response from China on U.S.-made cars. Beijing could also decide to buy more soybeans from Brazil instead of the U.S., putting the pressure on farmers throughout the country.
For his part, Morgan Stanley Head of U.S. Public Policy Strategy Michael Zezas wrote that while his base case expects China's GDP growth to recover to 6.5% in the second the third quarters, a U.S. tariff hike could cut that estimate by 0.3 percentage points. Negative surprises like a potential re-escalation of trade tensions can have a greater price impact than fundamentals might dictate, " Zezas told clients. "Near-term downside risk for Chinese equities onshore and offshore could be down 8% to 12%, arguably the biggest among major markets we cover."To be sure, trade deliberations aren't the only force at play in the markets. Any continued turbulence between the U.S.
"Now we see a situation where the European economy has slowed substantially and so has the Chinese economy, although the European economy more," he said at the time. "Just as strong global growth was a tail wind, weaker global growth can be a headwind to our economy."
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