- Asian markets initially went risk-off this morning in response to President Trump’s latest tariff announcement.
- But sentiment improved over the course of the day, and Chinese stocks roared into the close.
- However, just after 5pm AEST Reuters reported that Chinese officials said they will be forced to retaliate and are now preparing for a worst-case trade scenario.
Asian markets began the day with one eye on the White House, after US President Trump said he would make an announcement on trade once the S&P500 had closed.
And as expected, the US President Trump chose to press ahead with tariffs on another $US200 billion worth of Chinese goods.
The Australian dollar — commonly viewed as a risk-proxy for the global economy — immediately fell sharply.
Trade-exposed commodities such as copper also lost ground, which seemed logical given the significant escalation in US-China trade tensions.
And the falls in local stocks were followed a declines on mainland Chinese exchanges, with heavier falls on Hong Kong’s Hang Seng index which initially dropped by more than 1%.
But as the day progressed, sentiment improved significantly. The AUD recouped its losses then pushed above US72 cents, and Chinese stocks ripped higher into the close.
IG Markets strategist Ilya Spivak called the shift “very curious indeed”.
He highlighted some specific details in the latest round of US sanctions which he said may have eased concerns among some market participants.
“Initially set at 10%, they will go up to 25% as the calendar turns to 2019. That represents something of a retreat for Mr Trump, who wanted the higher rate implemented right away,” Spivak told Business Insider.
However, in a topsy-turvy day of trade tensions, Reuters then reported that Chinese officials said they would be forced to retaliate in the event that Trump’s latest tariffs are implemented.
President Trump said this morning that if China retaliates, he will push for tariffs on another $US267 billion of Chinese products, which would imply sanctions on the entirety of Chinese exports to the US.
In addition, Reuters reported that the head of China’s securities regulator, Fang Xinghai said policy makers were preparing for a worst-case scenario on trade.
A short time ago, the AUD had fallen back below US72 cents.
The earlier response from Chinese policy makers was more subdued, which appeared to ease concerns among participants that China would respond with a swift backlash.
Chinese authorities reitereated that trade protectionism will hurt both the US and China, arguing that further cooperation will be the preferred outcome.
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