Asian equities mixed after US and China tariff moves

Investors look at computer screens showing stock information at a brokerage house in Shanghai. The bourse added 0.8% to 3,031.24 points yesterday.

Image result for china factory
China factory

Signs of easing tensions between China and the US in their trade row fuelled hopes of a breakthrough in high-level talks next month but Asian markets were mixed as dealers struggled to extend this week’s healthy rally. Donald Trump on Wednesday said he would delay hiking tariffs on Chinese goods, just hours after Beijing announced it would remove a range of US products from its own planned levies.

The moves provided an extra shot in the arm for investors as they await key announcements from the US and European central banks that are expected to see a further easing of monetary policy.

In a tweet Wednesday night, Trump said: “We have agreed, as a gesture of good will, to move the increased Tariffs on $250bn worth of goods (25% to 30%), from October 1 to October 15.” He added that the delay was requested by “Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary”, on October 1.

Earlier in the day, China said it would temporarily exempt 16 categories of US exports from tariff increases in an olive branch to Washington before the talks take place and which Trump described as “a big move”.
The more conciliatory tone from both sides – after months of rancour – fuelled hopes they can edge towards a solution to their long-running trade war, which has jolted the global economy and stock markets. The delay “shows Trump doesn’t want to increase tariffs before the trade talks in early October and it creates good conditions”, said Tommy Xie, an economist at Oversea-Chinese Banking Corp.

“It adds to the hope that there’ll be good news from the October meeting, and markets will wait and see.” Wednesday’s developments were broadly welcomed though Asian markets struggled to hold on to initial rallies, with OANDA senior market analyst Jeffrey Halley adding a note of caution on the trade news.

“Just as the presidential tweet on tariffs… has injected more momentum into stocks and most likely emerging-market assets, what one hand gives the other can take away,” he said in a note.

“We are only one social media posting away from a thoroughly unpredictable president turning sentiment on its head.” Tokyo ended 0.8% higher at 21,759.61 and Shanghai added 0.8% at 3,031.24 while Sydney climbed 0.3%.

Mumbai and Taipei also rose, but Hong Kong dipped 0.3% to 27,087.63, while there were also losses in Singapore, Wellington, Jakarta and Manila.
The apparent easing of trade tensions boosted oil prices as the prospect of an end to the row revived hopes for demand. However, the gains followed a sharp drop for both main contracts as traders bet on a possible return of Iranian crude to the market after the firing of Trump’s hawkish national security adviser John Bolton eased fears of a conflagration in the Middle East. Traders are now turning their attention to Frankfurt, where the European Central Bank is expected to unveil an economy-boosting stimulus.

While the exact measures are unknown observers say it could cut interest rates deeper into negative territory or a new mass bond-buying drive, among other things. Then next week the Federal Reserve meets, with speculation rife that it will lower borrowing costs again, which would please Trump, who in a Twitter outburst on Wednesday said they should “BE BROUGHT WAY DOWN”.

There was also speculation the Bank of Japan was considering opening up its armoury to support the economy. In share trading, Hong Kong Exchanges and Clearing sank 3.5% after its shock bid of almost US$40bn for the London Stock Exchange Group on Wednesday.

Reports said the proposal is likely to fail, however, as it is dependent on the LSEG scrapping a planned $27bn takeover of US financial data provider Refinitiv, which the three-centuries-old exchange said it “remains committed” to buying.