Slow Start for Asian Markets Amid Trade Uncertainty

Alan Penny

13 May 2019

2 min read

Most of the major indexes in the Asia Pacific region were trading lower on Monday. This comes fresh from Friday’s US-China trade talks which ended without a positive resolution. The only news coming from these trade talks was the increase in tariffs to 25% on $200 billion worth of Chinese products.

Markets Await Chinese Response

At the time of writing, markets in China, South Korea, and Japan were all trading down for the day. This cautious approach and negative sentiment are expected to continue through the week. Traders are waiting on retaliation from China to the increased tariffs. This will almost certainly deal a further blow to markets, at least in the short-term.

The reaction from Beijing is very likely to be a tariff increase of their own as the trade war continues to intensify despite the potentially negative impact on both economies. Meanwhile, the Dow Jones is expected to open as much as 250 points lower on Monday.

A Response in What Form?

China’s commerce ministry has already said that they will certainly take countermeasures in the wake of the vastly increased tariffs. They have said they “deeply regret” how the events have transpired, but this in very unlikely to prevent them mounting a strong response.

There is a range of ways in which the government could respond in an effort to offset the impact of tariffs on Chinese imports. Experts agree that one of the most likely seems to be a currency devaluation of the Chinese Yuan. This would help to boost the value of Chinese exports. Other responses could come in the form of retaliatory tariffs against US products exported to China. Farm exports are one of the key areas which many expect to be targeted. This would likely have a very strong effect on US farmers which is a very important area of the Trump demographic.

Regardless of how Beijing chooses to respond, the negative impact will be two-fold. They will certainly be able to exert some influence over US products, though they will also have to deal with the knock-on impact of this on their own economy.

The Next Developments

As the markets remain poised for news on what will happen next, the most likely opportunity for concrete progress in the relationship will come at the G20 summit in Japan next month. The June meeting of world leaders is likely to be the next meeting between Trump and Chinese President Xi Jinping. According to the White House, while there are no specific plans yet arranged for a meeting, the chance were “pretty good” that the pair would have a one to one meeting.

The markets in both US and China, as well as US Dollar markets are likely to see some volatility when an announcement is made from Beijing in regard to its response measures. This should give way in the coming weeks to more calm and controlled markets as the uncertainty begins to be cleared up.

Written By
Alan Penny

Other related news

Do you have any experience with this broker? You can share it here:

Your email address will not be published. Required fields are marked *