May 29 2020 0
As we're coming to the end week as well as the month, we surely can see some chaos in the market. That's due to the recent news about the tension between the White House and China. Let's get updated and see what forex trading strategies we should apply for today.
Actions from Trump
Mr. Trump said he would announce new US policies to China on Friday after the country passed national security laws aimed at restricting freedoms in Hong Kong. His top economic adviser said the United States would hold Beijing accountable. Mr. Trump told reporters yesterday to answer the question of whether the United States will maintain the "phase 1" of the trade agreement he signed with Chinese officials: "We will announce our decisions to China tomorrow. And we are not happy with China. We are not happy with what happened."
China is not the only issue that has caught the President's attention lately: Mr. Trump has also signed an executive order that he says will restrict the legal protections that public officials will have. The social media company enjoyed it after Twitter began to actually check his tweets. Under current law, companies like Twitter or Facebook are protected for user posts. Meanwhile, US Secretary of State Dominic Raab warned the government would pave the way for civil rights for 300,000 Hong Kong residents unless China gave up its security laws according to their plans.
New political instability that has hurt Hong Kong is raising concerns about capital outflows from one of the world's largest financial centers. Although there is little evidence that investors, large companies or foreign residents are rushing out money transfers, the emergence of China's national security bill and the Chinese response. States that they can no longer attest to Hong Kong's political autonomy are causing considerable concern. Moreover, Beijing's latest intervention will eventually undermine confidence in the city's highly prized legal system, so investors will be closely watching the details of the law. China's new security and its influence on Hong Kong's justice, as well as the way the US responds. They will also monitor whether political unrest has flared up again after months of settling down from the virus. "Clearly, investors may be concerned about this," said Timothy Moe, Chief Asia Pacific Strategist at Goldman Sachs. Political issues will always lead in market awareness.
Another chaotic weekends
Asian stocks seemed ready for a turbulent trading session on Friday after US stocks tumbled over new tensions between the United States and China. The dollar fell. The futures market was little changed in Japan, falling in Australia and rising higher in Hong Kong. The S&P 500 index fell more than 1% after the announcement of Donald Trump - investors speculated that this action could destabilize the global economy, although the exact agenda is unclear. Treasury bonds have stabilized and crude oil has risen. European stocks closed with a gain amid optimism about reopening economies and an EU fiscal stimulus plan.
The Covid-19 shock may fuel global inflation due to large fiscal and monetary stimulus or a deflationary episode when demand declines. According to experience in Japan, the risk for a deflation is higher. Years of price losses after the asset bubble burst in Japan in the early 1990s prepared the basis for deflation in the end of the decade. Now, the world's third largest economy is still struggling to raise prices again.
According to Takao Komine, former head of economic research at the Ministry of Economic Affairs, Japan: "Until about 1997, the Japanese thought that the country could regain its economic capacity, but the financial crisis and raising taxes has shattered those hopes." It is worrisome that a similar model will come from other developed economies after years of weak price growth.