Update on trade war - APAC brief 18 Sep
US President Trump’s administration has announced the next round of tariffs on $US200bn worth of Chinese imports. The tariffs will be at a rate of 10 per cent, increasing to 25 per cent by the end of the year. The tariffs will be implemented on the 24th of September. The Chinese have stated that they will not come to the negotiating table if this second round of tariffs were implemented. We will be awaiting their response in the coming days.
The price action quoted below is evolving, but there is considerable risk-off behaviour and the day ahead is poised for heavy selling while market participants assess the possible impacts of the latest trade war escalation.
ASX: SPI futures are pointing to a slight dip at the open for the ASX200 of about 5 points. In the face of a day of thin trading courtesy of it being a Monday, combined with a bank holiday in Japan, the Australian share market did well to avoid the sell-off that gripped Asian equities yesterday. Fears relating to slower global growth showed up in the commodity sensitive materials sector and the growth-stock-heavy health care space, but despite this, the broader Index managed to push higher to settle slight above last week's high of 6280. Given the geopolitical risks constricting market sentiment today, a further push above that mark seems unlikely. But if clear air can be found, the next test for the ASX and its budding recovery sits around 6205.
US Markets: Wall Street has demonstrated weakness not witnessed for several weeks. Having bucked the global trend for some time, price action in US indices overnight displayed signs that traders are becoming wary of the consequences of heightened hostility between the US and China. Tech stocks led run lower overnight, resulting in 1.43 per cent tumble in the NASDAQ and a 0.56% fall in the S&P500. The benchmark S&P500, as a barometer for US equities, is still in a relatively strong position, remaining close to the top of its upward trend channel. However, according to IG data, sentiment is against the index, with 60 per cent of traders short on the market, exposing the 2870 support level as a noteworthy pivot point.
Asia: Trade within the broader Asian region to start the week has proven a dour affair. The trade war has cast a shadow over Asian indices, with any counter arguments around attractive stock valuations, or planned intervention from policy makers doing little to staunch sell-offs in these markets. The CSI300 is primed to hit new lows, opening today's session 13 points above its 52-week low, and with futures markets indicating a near 1 per cent drop at the open. The Hang Seng is showing some resilience, following a day that saw that index unwind much of last week's recovery rally. The interesting one today will be the Nikkei, which comes back on line after a public holiday yesterday and is showing signs of a noteworthy jump at the open despite a safe-haven play into the Yen overnight.
Emerging markets: The bearishness weighing-on major developed markets will keep pressure on vulnerable emerging markets. Fears that the Chinese economy may falter were behind the renewed sell-off, driving emerging market equities down 1.2 per cent yesterday. Losses in emerging market currencies were relatively contained considering this, but that was largely owing to a weaker greenback. India’s Rupee suffered a fresh bout of selling, after Indian policy makers efforts to stabilize the country’s financial markets failed to assay investors’ concerns about financial stability in the Indian economy, translating into increased selling pressure on currencies ranging all the way from the Philippine Peso to the Turkish Lira.
Commodities and safe havens: The instability in emerging markets coupled with the effects on global growth of the US-China trade war has hit commodities and prompted a play into safe-haven assets. Copper prices maintained its downward trend to start the week, while oil prices also appeared to manifest demand-related concerns. The Bloomberg Commodity index was down 0.4 per cent at the end of the North American session, portending further losses to materials stocks today. Gold prices rallied back towards resistance at $US1207, as traders sold out of the US Dollar and avoided a play into US Treasuries, preferring to park safe-haven funds in the JPY, EUR and GBP. The trade dynamic led to a paradoxically steady AUD/USD overnight, trading at around 0.7180 for much of the North American session, though it must be noted the local unit slipped against most other major currencies.
RBA Minutes: The major event today during the local session will be this morning’s release of the minutes from the RBA’s most recent meeting. Few surprises are expected from the minutes, with recent economic data doing most of the talking for the Australian economy of late. Interest traders have kept wedded to the idea that interest rates will remain on hold until early 2020, something the RBA has done little to contradict in recent months. As is always the case, today’s minutes will be perused by traders for fresh insights into the hot points relating to the domestic economy’s health: this time around, that will likely come in the form of discussion about out of cycle rate hikes from the major banks and concerns about the strength of Aussie households. A major response to today’s news looks unlikely but watch for moves in the Australian Dollar with the realms of support at 0.7150 and resistance at 0.7200.
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