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Illustration: Sarah Grillo/Axios

Despite warnings from economists that the U.S-China trade war could cause a global economic recession, investors have been buying rather than selling.

What's happening: Both institutional investors and hedge funds have gone bargain-hunting in the weeks since President Trump reignited the trade war by increasing tariffs on Chinese imports to 25%. Investors remain largely convinced that the public squabble between the 2 countries is bluster, and that a deal is likely sooner rather than later.

Details: Bank of America-Merrill Lynch equity analysts said Tuesday its clients "bought the dip" for the second straight week, with $2.2 billion worth of cash flows to stocks, "which may suggest optimism that a deal will be reached and global growth will continue to recover," Jill Carey Hall, an equity and quantitative strategist at BAML, wrote in a note to clients yesterday.

  • To wit, the bank's data shows 85% of investors expect a deal on trade while just 10% expect further escalation. Investors' survey responses imply only a 17% probability of a recession in the next 12 months.

The intrigue: Even at the height of selling, when the market sank 5%, investors were not panicking. Data from Deutsche Bank found that net long positions in equity futures — which were at the top of their historic range before the selloff — have only fallen modestly and remain above average levels.

  • The selloff was even weak compared to traditional pullbacks after a long stock rally, like the one the U.S. market has seen for much of 2019.
  • That leaves the market "vulnerable in the near term," Deutsche Bank Research strategist Parag Thatte said in a note.

But data shows that investor confidence may be misplaced, as tariffs are already starting to make an impact. Goldman Sachs analysts note that U.S.-China trade is showing significant slowing in items hit by initial tariffs on steel and aluminum imposed by Trump in early 2018.

Even so, fund managers remain bullish and hedge funds have significantly cut back on defensive positioning, Masanari Takada, a quantitative strategist at Nomura, said in a note to clients.

  • "It would appear that the majority of hedge funds do not expect another sharp rise in volatility, and that they have concluded that the correction has run its course."

Go deeper: The world can't afford a trade war right now

Go deeper

UN poll: Most see climate change as global emergency amid pandemic

Swedish climate activist Greta Thunberg (C) fronts a Fridays For Future protest at the Swedish Parliament in Stockholm in September. Photo: Jonathan Nacksrtrand/AFP via Getty Images

64% of people from around the world say climate change is a global emergency, a United Nations poll published Wednesday finds.

Why it matters: It's biggest global survey on climate change ever conducted, with some 1.2 million participants from 50 countries — including the U.S. where 65% of those surveyed view climate change as an emergency.

Collins helps contractor before pro-Susan PAC gets donation

Sen. Susan Collins during her reelection campaign. Photo: Scott Eisen/Getty Images

A PAC backing Sen. Susan Collins in her high-stakes reelection campaign received $150,000 from an entity linked to the wife of a defense contractor whose firm Collins helped land a federal contract, new public records show.

Why it matters: The executive, Martin Kao of Honolulu, leaned heavily on his political connections to boost his business, federal prosecutors say in an ongoing criminal case against him. The donation linked to Kao was veiled until last week.

How cutting GOP corporate cash could backfire

Illustration: Aïda Amer/Axios

Companies pulling back on political donations, particularly to members of Congress who voted against certifying President Biden's election win, could inadvertently push Republicans to embrace their party's rightward fringe.

Why it matters: Scores of corporate PACs have paused, scaled back or entirely abandoned their political giving programs. While designed to distance those companies from events that coincided with this month's deadly siege on the U.S. Capitol, research suggests the moves could actually empower the far-right.

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