Trade war hypeBy Peter Rosenstreich
Markets are overreacting to President Donald Trump’s threats of a trade war. Trump is using the issue for political gain, rather than actual trade repositioning. This will give him a nice bullet point for stump speeches in the 2020 campaign, but he gains little from sparking a full-blown trade conflict. Besides, the World Trade Organization is still in action.
Currencies with significant export exposure to the USA such as MXN have declined, while those with solid domestic demand and lower reliance on exports such as INR remain solid. Even the generally beta-sensitive ZAR has improved (marginally helped by gold trade).
We see this as an opportunity to reload in emerging markets: ZAR, INR, PLN and MXN all look interesting.
Markets are on a knife-edge, fearing a trade war. China is unlikely to sit idly in response to Trump’s bluster. Asia markets were lower across the board while safe haven CHF and JPY were the only real gainers in forex.
Asian markets slump against threatsBy Vincent-Frédéric Mivelaz
So US President Donald Trump vowed to impose 25% tariffs on Chinese imports worth USD 60 billion. Asian markets swooned: Hong Kong’s Hang Seng sold off 2.95%, hammered by IT (-6%) while China’s CSI300 dropped 2.87% and Japan’s Nikkei 225 dropped 4.51% and Topix slumped 3.62%.
China says it is willing to impose tariffs on US imports on pork, fruits, nuts, wine and construction products. Additionally, China is planning to initiate infringement procedures to the World Trade Organization concerning recently introduced iron and aluminium tariffs. This probably will go nowhere: it’s about baring teeth and looking tough. It is only a matter of time until the situation cools down. Despite all this, we see the USD/CNY strengthening short-term, currently at 6.32 and expected to head toward the 6.33 range.