Unexpected response to US duties from stock markets

Posted 11 May, 2019

It has been officially confirmed that the US Donald Trump eventually revised the import duties on Chinese products worth $200 billion. As a result, the imports from China worth $250 million in total are subject to 25% tariffs now. Meanwhile, the Asian stock markets reacted somewhat unnaturally to these reports after a week sales.

According to the market data, the Shanghai Composite trimmed gains with further recovery posting new daily peak. Following the recent decline, Nikkei 225 posted upturn. Moreover, many Asian stock indices remained positive lately. Such a scenario was somewhat unexpected in the market, though it can be related to certain optimism suggesting that Washington and Beijing may finally come to terms and settle down the long-lasting conflict during the Friday negotiations.

At the same time, safe haven assets, including Japanese yen and gold, hardly showed changes, though they may soar which could be expected following the trade conflict escalation between two major economies.

The Brent futures keep trying the level of $71/bbl. If we do not take into account the initial market response, expanding tensions between the USA and China can put pressure on the economic driver, while the oil market will face negative impact given fears of long-term global economy perspectives.

As for investors, they will probably try to determine what countermeasures can be taken by Beijing and whether this step eventually provoke Donald Trump to impose duties on Chinese imports worth $325 billion. The market participants believe that further actions will only fuel tensions between the countries, so it is actually unclear how long this conflict will last at all.
The available trading data published by the US Bureau of Statistics showed that practically half of Chinese imports (47%) in 2018 is now subject to duties. Meanwhile, in China duties cover 91% of American products exported to this market. This means that Washington has more room for changes.

The global economic downturn will become even more real if US-China trade falls under 100% import duties. In this situation, risk assets will lose grounds recorded this year. The talks between the parties reportedly continued this Friday, which is definitely positive news bringing little hope for a positive outcome. 

Previous forecast

14 May, 2019 14:48

← US-China tensions rising: new tariff hits

The countermeasures by Beijing came quickly. China announced new duties on some American products yesterday, which depressed the US dollar against such currencies as the Japanese yen, Australian and Canadian dollars. 

US-China tensions rising: new tariff hits

Next forecast

07 May, 2019 16:17

Market participants look for China-US talks to take place this week →

The markets still entertain a hope that the Washington-Beijing talks will eventually take place especially given the recent reports that the parties are about to hold a meeting in Washington this week.

Market participants look for China-US talks to take place this week
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