The US – China trade war has moved to the next level as tariffs kicked in from both parties stating at 12:01 pm in HK and Singapore. The trade war seems to be taking a turn that we thought could be avoided. The escalation of tensions in Washington and Beijing on trade hit the Australian and Hong Kong markets as they traded into negative territory. After the opening sell-off, the ASX 200 recovered slowly but again, still closed down on the day by 0.12 percent to go out at 6,186.9 with a hard hit taken in the financial sector. In the Greater China areas such as Hong Kong – the Hang Seng Index – come under renewed pressure. This market as you well know has performed poorly and seems to be ready for another sell-off.
Note that Washington announced 10 percent tariffs on $200 billion of goods from China, which China answered with tariffs on $60 billion of US goods. China has called off trade talks because of the new round of duties. President Trump has threatened to place tariffs on over 500 billion dollars of Chinese goods – this announcement coming at a time when the Chinese economy is slowing from the 6.7 percent range to the 6.2 percent range according to analysts. China has several internal issues and this external or export issue could put more political pressure on President Xi as he prepares to meet President Donald Trump at the G20 in November.
In the morning, after the tariffs went into play, the safe haven currency, the Japanese Yen was trading at the 112.53 level, which is basically flat. There are issues that point to USDJPY trading to 115.00 or higher. Again, we do not give trade ideas but we do like this trend in USDJPY.
The offshore Yuan and the Korean won weakened against the greenback, but again this was expected. The won traded 0.4 percent lower against the dollar – 1,118.42 won to the dollar was traded once this currency pair settled.
Frankly speaking, I think we should be focused on Hong Kong and China equity markets as volatility could increase.