US-China tariffs threat returns
The return of the US-China trade issue into the picture looks set to cap gains for markets that had rallied against the back of a series of positive factors since the start of the week.
Trump attempting to secure the G20 meeting with tariffs
Indeed, we have seen Wall Street return at the start of the week to continue cheering the Mexico deal and prospects of Fed cuts, though keeping the gains moderate. The risk-on mood had also continued to boost the cyclicals as seen on the sectoral breakdown of the S&P 500 index from Monday.
That said, while the contemplation of tariffs as a trade negotiation tool with Mexico had yet to halt, we have certainly seen the US-China trade issue returning to the table to mar the outlook for markets into Tuesday. To recap, President Donald Trump had threatened to hike tariffs on Chinese goods to ‘much higher than 25%’ should President Xi Jinping not agree to a meeting with him at the G20, sounding much like a positioning move.
We may once again be attempting to play political analysts here, but the seemingly complicated matter of a US-China trade deal appears highly unlikely to be resolved from a high-level meeting between the two Presidents. The best result that could be yielded from such an event may be the last G20 where a trade truce would be declared, and negotiators return to the table to spark another bout of market rallies as we have seen at the start of 2019. As such, President Donald Trump’s latest threat does appear to be one working towards that ‘win’. The complication, however, would be China’s stance given the apparent interest to undermine China’s ability to lead in the areas such as 5G and the coercive statements suggesting that China will ‘have to make a deal’.
Given the return of the US-China tariffs threat to the table, look to Asia markets to waffle along into the Tuesday session. As mentioned above, we have had a series of positive factors to kickstart the week including the surprise in China’s trade data. Exports had outperformed at 1.1% year-on-year against the market’s expectation for a decline while imports slipped, altogether building a strong trade surplus for May. There is, however, some sense that this could have been a result of front-loading thereby warranting continued caution into June. The external picture is unlikely to have improved in May given the backdrop of aggravated trade tensions between US and China among other trading partners.
A series of tier-2 data is expected in the day while the watch will also be on any rebuttal from China following the tariffs threat. The risk-on, risk-off play looks to have been little changed this morning based on the risk barometer USD/JPY’s contained movements. Any escalation on China’s end however puts the $108 level back on the firing line.
Source: IG Charts
Yesterday: S&P 500 +0.47%; DJIA +0.30%; DAX +0.77%; FTSE +0.59%
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Take a position on indices
Deal on the world’s major stock indices today.
- Trade the lowest Wall Street spreads on the market
- 1-point spread on the FTSE 100 and Germany 30
- The only provider to offer 24-hour pricing
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.