Mark Mobius: The trade war is a prelude to the next financial crisis

The veteran investor, Mark Mobius, has one warning for investors who quickly forgot what happened in February with the indexes.
According to the expert, the trade war between the US and China is a precursor to the next financial crisis. Still, worst in US-China relations is ahead, in the light of the imposition of new tariffs on Chinese goods worth more than 200 billion dollars.
The worst is yet to come, commented Mobius in an interview with Bloomberg.
What does Mobius mean by "the worst"?
Mobius expects a further 10% decline in emerging markets and, ultimately, a financial crisis in the US and around the world.
According to him, tensions between the US and China will rise, with Trump not giving up on his plans to impose tariffs. Inflationary pressures will rise from wage growth in an environment of full employment in the world's largest economy, says the investment expert.
Good news, according to Mobius, is that damages to stock markets will eventually be a good opportunity to buy. He himself is currently raising his capital to take advantage of these potential opportunities in the future.

The trade war threatens the reserve status of the dollar

The danger of a trade war between the US and China is again on the agenda. And this may play a bad joke to the appreciation of the dollar against other major currencies, according to analysts.
Moreover, President Trump's protectionist policy threatens the status of the US dollar as the main reserve currency.
The US has already introduced steel and aluminum duty and threatens to do so with other Chinese and European goods. Meanwhile, the two parties concerned are expected to take reciprocal action.
The use of the dollar has long brought about serious risks for countries like China, as witnessed by turbulence caused in the country in 2009 by the financial crisis.
China Central Bank, again warned of avoiding the dollar in 2013.
Otherwise, history shows that in a trade war, the dollar has seen a serious depreciation against other major currencies.
In view of the current strong increase in green money over the rest of the major currencies, the time to shorten the dollar appears to be quite appropriate.

The game of the central banks

A week after Brexit markets are still in a state of turbulence. The first euphoria designated by central bank's support measures are gradually coming to "no", the sellers return to the market, and the demand for protective assets once again are at a record level. As a result, the yield on the thirty-year US Treasury bonds renewed historical minimum and they are now trading at 2.13%, oil quotes have gone below $50 per barrel (Brent), under pressure were the emerging markets, as well as the British pound.
One of the most important upcoming events for the markets is the meeting of the Committee on the open market of the US Federal Reserve on 26-27 July. Although the markets do not believe in a rate hike at the next meeting, extremely high attention will be drawn on what would Yellen say in her comments. If market expectations will meet and the Fed will adjust their plans to tighten monetary policy, the trend in the reduction of interest rates on the long end of the curve will continue, but the demand for risky assets will start to grow again. Otherwise, we may see a correction.
It is necessary to pay attention to the statistics coming out. The June's PMI in almost all developed countries are above 50, which means that the industry expects growth in demand. It is, first of all, a positive signal for commodity prices and for the emerging economies. "The Big Spoil" is China, where the fourth month in a row on the contrary we see a decline in PMI. But Chinese risk is largely incorporated in the prices of assets and is unlikely to be "trigger" of sales, in the conditions when the central bank poured liquidity to the market.

The third wave of devaluation of the yuan is in full swing

It seems that the world is on the verge of another currency "war". Chinese Yuan in early summer renewed the lows again in pair with the US dollar, of course, not independently, but under the strict guidance of the People's Bank of China. China's regulator returned to its controlled currency devaluation to reduce the negative impact of the massive outflow of capital from the country. During 2015 China lost about $500 billion, about the same number are expected in the current year. This is "hot" money, which are present in some amount in each developing economy, but returned to the owner with the expansion of the spread in interest rates. Now that China stimulates its economy, while the US Federal Reserve is ready to toughen the terms of monetary policy, the currencies of developing economies may again come under pressure.