Asia trades higher as investors shrug off escalating US-China trade tensions

20-Sep-2018 Intellasia | CNBC | 6:00 AM Print This Post

* Asia markets rose on Wednesday as investors mostly shrugged off an escalating trade conflict between the US and China.

* Late Tuesday, China announced that it was imposing tariffs on US goods worth about $60 billion.

* Beijing’s retaliation came after the Trump administration announced that it was slapping 10 percent tariffs on Chinese goods valued at about $200 billion on September 24.

Asia markets mostly rose on Wednesday as investors took an escalation of trade tensions between the US and China in their stride.

In Australia, the benchmark ASX 200 rose 0.46 percent, with the materials and energy sectors gaining 1.91 percent and 0.82 percent, respectively. Major mining stocks rose: shares of Rio Tinto were up 2.52 percent, Fortescue jumped 5.11 percent and BHP gained 2.76 percent.

Japan’s Nikkei 225 was up 1.34 percent and the Topix index added 1.57 percent. The Bank of Japan kept its monetary policy steady and maintained an upbeat view on the economy. In its policy statement, the central bank said it expects Japan’s economy to “continue its moderate expansion” and that domestic demand is likely to follow an uptrend.

In South Korea, the Kospi fell 0.2 percent.

Chinese mainland markets were up: the Shanghai composite gained 0.97 percent and the Shenzhen composite added 1.09 percent. The on-shore yuan traded at 6.8502 to the dollar at 12:18 p.m. HK/SIN.

Premier Li Keqiang addressed the World Economic Forum in Tianjin on Wednesday, where he acknowledged that China is confronted by a host of challenges and is facing “greater difficulties in keeping stable performance of the Chinese economy.” But he insisted that China was comfortable with its economic situation, and that Beijing has prepared sufficient policy tools to boost the country’s resilience in coping with various difficulties.

Li’s comments followed an escalation in trade tensions between the United States and China.

China announced tariffs targeting more than 5,000 US products worth about $60 billion will go into effect on September 24. However, China will put a 10 percent tariff on some goods it had previously earmarked for a 20 percent levy. At the same time, China’s commerce ministry said that it filed a complaint to the World Trade Organisation (WTO) against the US

Beijing’s announcement came after the Trump administration said the US will impose 10 percent tariffs on $200 billion worth of Chinese imports, and those duties will rise to 25 percent at the end of the year.

“China is limited in its scope for direct retaliation from here, with only $50 billion worth of imports left to target, but so far has refrained from threatening to tariff all imports from the US,” Jo Masters from ANZ Research said in a morning note.

The complaint to the WTO risks provoking further measures from the US and could eventually escalate to all American imports from China being taxed, Masters added.

“Increasingly it looks like this will be a prolonged dispute. And as it escalates, so does the economic fall-out,” Masters said.

Amid all that, China’s holdings of US Treasury bills, notes and bonds dropped to a six month low of $1.171 trillion in July, from $1.178 trillion in June. That data is watched because dumping Treasury securities is viewed as one way China could retaliate against the US in the ongoing trade dispute. Still, strategists are skeptical China is really trying to send a message this way.

In the currency market, the dollar index, which measures the greenback against a basket of currencies, traded at 94.601 at 12:19 p.m. HK/SIN, falling from levels above 94.800 earlier in the week.

The Japanese yen, which is considered a safe haven currency, traded at 112.34 to the dollar, weakening from levels below 111.6 in the previous week. Relative weakness in the yen likely saw major Japanese exporters trade up, with Toyota shares gaining 1.24 percent, Nissan up 1.35 percent and Honda adding 2.89 percent.

Elsewhere, the Australian dollar traded at $0.7239, strengthening from levels below $0.7120 in the previous week.

Analysts said that markets have mostly shrugged off the escalation in trade tensions between the world’s two largest economies.

“Risk markets have not only taken these announcements in their stride, but it’s been a risk-on mood permeating markets with stocks, commodities, bond yields, and risk-sensitive currencies all performing,” David de Garis, director for economics and markets at the National Australia Bank, wrote in a note.

He pointed out that there’s a realisation among investors that the US economy has continued to perform despite what will likely be some uptick in inflation from the tariffs. Investors are also recognising signs that the Chinese authorities are taking steps to buttress their economy with more policy support, De Garis said.

Oil prices traded near flat in the afternoon session in Asia, with US crude up 0.09 percent at $69.91 a barrel, and global benchmark Brent flat at $79.03.

Overnight, oil futures gained more than 1 percent following signs that OPEC would not be prepared to raise output to address shrinking supplies from Iran, reports said.

https://www.cnbc.com/2018/09/19/asia-markets-us-china-trade-war-currencies-in-focus.html

 


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