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May 8, 2019, 10:52 a.m. EDT

Here’s why investors are so freaked out about trade tensions, according to Jamie Dimon

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By Barbara Kollmeyer, MarketWatch


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Dimon thinks China trade tensions are likely to be fleeting

Expecting a stiff upper lip from Wall Street as we worm our way toward high-profile U.S.-China trade talks is a formidable task.

Stocks are setting up for another tough day after Asia stocks crumbled under the weight of recent U.S.-China tensions. A mauling for Wall Street equities Tuesday left all but three dozen S&P 500 stocks finishing in the black, and all three major indexes are down about 2% this week.

Not helping the mood, fresh data from China showed a surprise drop in exports. As analysts at TD Securities point out, the trade deficit with the U.S. remains close to record highs, “a fact that will likely not go unnoticed in trade talks tomorrow and Friday.”

“One fly in the ointment would be this. If this [trade talks] really go south, that would change global growth.”

— Jamie Dimon, CEO of JP Morgan Chase

This too shall pass? So says our coolheaded call of the day from the head of global banking giant JPMorgan Chase, Jamie Dimon, who believes smart people on both sides will make a trade deal happen, and he sees an 80% chance of that happening. As for the pullback we’ve seen from the stock market lately, he says that’s not been too out-of-the-ordinary.

“If you just raised the odds of a real global trade war a little bit, that was a rational reaction,” Dimon told Bloomberg in an interview Wednesday at the bank’s annual China summit in Beijing. “The market will fluctuate, economies will fluctuate. People will always get scared and overreact.”

He explains more about the market psyche right now that has wiped 2% off major indexes this week: “The odds of something bad happening [in trade negotiations] is now double. Whatever you thought they were — 2%, 5%, 10% is probably doubled. That’s why the market is reacting to it because they’re not just afraid of the direct effect, they’re afraid if it reverses global trade, it reverses global growth and hurts trade around the world,” he said.

But then investors aren’t looking at all the good news that’s milling around, he says. “China’s growing at 6.5% — that’s a trillion dollars in growth. America is growing at almost 3%, which is half a trillion dollars in growth,” said Dimon. “One fly in the ointment would be this. If this [trade talks] really go south, that would change global growth.”

As for the timing of that deal, Dimon isn’t so optimistic Friday will be the day, but is hoping those higher China tariffs don’t get put in place. The CEO said both the U.S. and China should take their time to get it done right, with signs that “enormous progress” has already been made. “I’d rather not do a deal than do a bad one,” he said.

He also touched on U.S. Treasury bonds, which have been gauging how rattled investors have become lately.

The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -1.26%  fell to a five-week low of 2.448% on Tuesday, logging its biggest daily decline since March 22 as the threat of a trade-war escalation drove investors toward haven assets such as bonds. Yields fall and prices rise when investor confidence wanes and demand for perceived safer investments pick up.

Dimon said the current yield on the 10-year Treasury note is looking “extraordinarily low,” and he’s told his board of directors the bank has to be “able to handle 5%, 7%, 8%, 10% because you don’t know.”

He shied away from offering up a year-end forecast for bond yields, but said “4% when you are having fairly good growth isn’t a bad number.”

The market

The Dow /zigman2/quotes/210598065/realtime DJIA +1.90%  , S&P 500 /zigman2/quotes/210599714/realtime SPX +1.95% and Nasdaq /zigman2/quotes/210598365/realtime COMP +0.81%  are off to another day of losses. Read more in Market Snapshot

Read: The only 36 stocks in the S&P 500 that closed with gains on Tuesday

The dollar /zigman2/quotes/210598269/delayed DXY -0.51% is softer, but not against the New Zealand dollar /zigman2/quotes/210561726/realtime/sampled NZDUSD +0.9319% after that country’s central bank cut its key lending rate for the first time since 2016. Gold is up, U.S. crude is up. Gold  is tapping a one-month high.

Europe stocks /zigman2/quotes/210599654/delayed XX:SXXP +1.41%  are lower, while Asia stocks had a tough day, with the Nikkei /zigman2/quotes/210597971/delayed JP:NIK -0.04%  and Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP +0.37%  losing more than 1% each.

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