Dec 04 2019 0
The tension between USA and China has surely created some volatility in the market. Traders all over the world are watching the development closely and so should you. Check out the latest development on the matter in today's article.
The US-China tension
With a series of trade threats coming from three continents within 24 hours, US President, Mr. Donald Trump has reminded financial markets that he was still comfortable before entering an election year. He would use tariffs as the main tool to gain international economic leverage. In London yesterday, after being asked whether he would see the first phase of a trade deal with China this year, Mr. Trump said, "I haven’t set a deadline for this deal. I’d like to wait for the deal with China until the election is over. But China wants to make an agreement now and we will consider whether or not we would."
The dispute over the last 20 months has caused stocks across Europe and the United States to decline before a U.S. tax increase on December 15 for Chinese imports of about $160 billion on smartphones, toys, and children's clothing. Tensions between the United States and China are likely to be exacerbated by moves of US lawmakers when considering a bill in favor of the Uighur minority in Western China.
The declination of the market
Uncertainty about the upcoming tariff period has caused Asian stocks to decline after US stocks fell and Treasury Bonds gained. The futures market witnessed a fall in all three markets including Japan, Hong Kong, and Australia. The S&P 500 index dropped yesterday, although the fall had slowed down in the afternoon trade. While he has prepared to wait for another year before signing an agreement with China, Trump also threatened to tax France after taxing steel from Brazil and Argentina. The increase in Treasury Bond prices has led to the strongest drop in yields since August.
Moreover, gold, the yen, as well as the Swiss franc quickly became sheltered assets. Australian bonds also gained higher in the first session today. On the other hand, oil prices increased as traders turn their attention to the upcoming OPEC meeting. This could lead to the fact that some of the largest crude oil producers would cut supplies harder.
Expect the unexpected
Australian asset managers are busy preparing for what was once impossible: the prospect of quantitative easing in their own backyards. They studied the lessons from abroad and gave another thesis to Central Bank Governor Philip Lowe, who sought to reduce the likelihood of quantitative easing in Australia. A number of asset managers, including QIC and Nikko, have bought the assets because they are betting that interest rate cuts will not be enough to combat sluggish economic growth.
The Reserve Bank of Australia has cut interest rates three times since June, to a record low of 0.75%, when economic growth weakened to the slowest pace in the decade. Mr. Lowe said in a speech on November 26 that the main interest rate would need to go up to 0.25% before he considered quantitative easing, and even then, the barrier to buying assets will continue to increase even more. But when the unemployment rate is too high to spur wage increases and rising consumer prices, investors are expecting Mr. Lowe to be driven out of his comfort zone.
The state of default in China
China is moving towards a record year in domestic bond default, challenging the ability of the government to maintain a stable market when the economy is slowing and companies are struggling to pay off never-seen-before debts. At least 15 defaults since the beginning of November pushed this year's total number to 120.4 billion yuans ($17.1 billion), while 2018's record was 121.9 billion yuans.
