Excitement Over U.S.-China Truce Fades

Asian equities lost steam, as optimism over US-China trade softens. Japan’s Nikkei 225 is closing at -2.39% while Australian ASX 200 and South Korean KOSPI indexes closed at -1.01% and -0.12% respectively. Hong Kong’s Hang Seng improved by +0.29% while China mainland CSI 300 gained +0.21%.

Investors are realising that US-China relations have a long way to go. Tariffs of 25% on over USD 200 billion of Chinese imports are on the way. Chinese authorities are expected to send its negotiators as early as next week while US Trade Representative Robert Lighthizer is gearing up to represent the White House.

On the agenda are: reduction of Chinese auto tariffs against US manufacturers (currently: 40%); purchase of US agricultural products; Chinese industrial subsidies; and intellectual property practices.

Peoples Bank of China Governor Yi Gang confirmed he will support the Chinese economy by further monetary policy easing. This will allow the Chinese Renminbi to recover slightly, which lowers the risk of further capital outflows.

USD/CNY has lost 1.72% this week, trading at 6.8408 and approaching 6.8350 short-term.

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By Vincent Mivelaz