“Markets are never wrong, but they are often misunderstood, or the prevailing flows are given credit they were never intended to convey, and sometimes investors execute trades just because they have to,” warns former fund manager and FX trader Richard Breslow as he looks at the US and Chinese market reactions to the latest round of tariffs and tariff retaliations.

Via Bloomberg,

But I’m not going to dispute what has been going on this week, other than to suggest that it may be advisable not to come to conclusions that lose the forest for the trees. Or base a trading strategy on questionable foundations.

It’s all of Wednesday and already there are a few examples worth considering: The equity rally after new tariffs between the U.S. and China were announced, the sterling rally on Brexit optimism and rising U.K. CPI, and the blithe acceptance of Italian budgetary assurances, alongside the utter indifference to the ongoing struggle within the German governing coalition that led to last night’s “reassignment” of the head of domestic intelligence.

The tariffs came and equities rallied hard. Immediately we were regaled with explanations that they aren’t so bad, were less than feared, aren’t immediate and other facile explanations. Dangerous conclusions to draw when you consider the stakes and the people involved.

Lost in the discussion was the news that accompanied the Shanghai Composite rally that set the whole market tone. China’s National Development and Reform Commission announced plans to accelerate infrastructure spending, clarified that there would be no retroactive collection of social security taxes, is working on ownership reform for underperforming state-owned enterprises, streamlining the process of custom clearance for exporters and improving the forward guidance for the amount of Total Social Financing, in other words how much support will be provided to the private sector of the real economy.

Now ask yourself why stocks chose to rally.

It doesn’t change the fact that they did, but be careful in assigning causality because it is a big assumption to make that trade tensions are going away anytime soon. And be utterly dismissive of the claims that tariffs will bring China to its knees without any noticeable pain felt in the U.S..

The pound is continuing its month-long ascent.

From a technical point of view it’s been impressive. But the spin with which progress is being portrayed on the absolute and relative negotiating stances of the EU and the U.K. is remarkably optimistic. Faking a deal as a good thing is a remarkably modern method of analysis in the QE world. But before getting too far over your skis, at least wait for the outcome of the Tory Party Conference at the end of this month. A lot of what you are hearing, from both sides, has a to do with helping to orchestrate its outcome to preserve the current power structure. And I had a good laugh when told that interest rate hikes moved forward after a CPI beat driven by higher theater ticket prices.

I won’t talk about Italy, other than to say, good luck with assuming the budget and debt worries are behind them.

Or to think that the coalition partners will willingly abandon their campaign promises and suddenly become enamored with the European Commission. Instead, for today, consider that the immigration dispute in Germany has been getting worse, not better. Very much to the detriment of Chancellor Angela Merkel’s hold on power. Dismissing a spy chief with well documented far-right sympathies is one thing. But this is someone with strong support from one of her coalition partners she can’t survive without. For those who often confuse Germany with Europe, a government in turmoil is not a signal for a hawkish ECB. Grab up those euros with your eyes wide open.

There’s a lot going on in the world. It defies easy explanations. Beware thinking that one set of moves means everything has been sorted.