Steel yourselves fellow Fools! The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is set to crash Monday morning as the Trump trade war took a turn for the worse.
There won't be many places to hide from the carnage but there are a handful of ASX stocks that are likely to buck the downtrend after US President Donald Trump spat the dummy by increasing tariffs on Chinese imports and ordering US companies abandon the Asian nation.
Trumps tantrum was triggered by China' decision to slap retaliatory tariffs of 5% to 10% on US$75 billion of US goods.
Fresh blows in new round of trade hostilities
But it isn't only the extra taxes that will strain relations between the world's two largest economies and push them closer towards the point of no return. For the first time, Trump called President Xi Jinping an "enemy" and tweeted that the US didn't need China.
He further tweeted that US companies are "hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA".
Of course, US business leaders do not have to listen to his command as it lacks any legal basis, although Trump could make life harder for American corporations choosing to stay engaged with China.
Trump's lack of foreign policy experience shows and even US experts (like Federal Reserve chairman Jerome Powell) and its allies blame Trump for the mess.
The gold-lining to the conflict
The fresh trade war salvos triggered a sharp 2.6% crash in the S&P 500 and a 3% meltdown on the NASDAQ on Friday, and our market is likely to drown in red ink when it opens.
But there's one group of stocks that stand to reap the rewards from the mayhem – and that's ASX gold miners as the price of the precious metal jumped around 2% to US$1,527 an ounce.
This bodes well for our largest gold producers like the Newcrest Mining Limited (ASX: NCM) share price, the Evolution Mining Ltd (ASX: EVN) share price and Northern Star Resources Ltd (ASX: NST) share price, although it's the smaller and more marginal producers that will likely stage a bigger rally.
Some investors might be worried that the whole sector has run too far ahead as gold stocks are trading above the price targets of many brokers.
Gold and rare earths heading higher
However, I suspect brokers' valuations are based on a lower forecast gold price that the spot price. We might see the sector enjoy a wave of upgrades if the gold price pushes higher, as I suspect.
This is because the trade war is spilling over into a currency war. The safe-haven US dollar actually fell amid Friday's chaos as traders are betting that Trump will order the US Treasury to devalue the currency.
This loss of faith in the value of the world's reserve currency will lure gold bulls out in force and will almost guarantee a big rally in the yellow metal.
But gold miners aren't the only ones that could provide safe harbour. I believe rare earths miner Lynas Corporation Ltd (ASX: LYC) could also find supporters amid the escalating trade war as China will be prepared to restrict supply of the minerals used in electronics and military hardware if things get much uglier.
Maybe we are better off staying in bed on Monday.
