Markets Breathe a Sigh of Relief as Trump Holds Back on China Tariffs
After months of uncertainty, investors in Chinese assets are finally getting a respite from the trade war tensions. Despite threats of tariffs on Mexico and Canada, US President Donald Trump has not announced immediate action against China, giving the markets a temporary reprieve.
Chinese Stocks Stage a Relief Rally
The Hang Seng China Enterprises Index surged 1.3% during Tuesday’s mid-day trading break, while the CSI 300 Index, a benchmark for mainland shares, fluctuated before gaining 0.4%. The offshore yuan also held on to most of its overnight rally, slipping only 0.1%. Chinese stocks led the gains in Asia, rebounding from months of pressure due to heightened trade tensions.
Cautious Optimism Amidst Uncertainty
Economists and traders are adopting a cautious approach, aware that the threat of tariffs still looms large. “Be flexible” is the mantra, as predicting the uncertainty is proving to be a challenge. The possibility of more tariffs being announced in the coming weeks or days cannot be ruled out.
Global Markets React to Trump’s Comments
Following Trump’s comments on Canada and Mexico, their currencies fell as much as 1.4% each. The dollar gained momentum after sliding more than 1% on Monday, while ten-year US Treasury yields fell as much as 10 basis points in Asia on Tuesday.
Hopes Rise for a Xi-Trump Deal
Hopes are rising for a deal between Chinese President Xi Jinping and Trump to ease tensions, following a “very good” phone call last week. A trade war is nothing new for Beijing, but the Chinese economy is in a weaker state than during Trump’s first presidency, with a bigger reliance on exports.
Tariff Development Remains Uncertain
Traders are aware that any reprieve can be short-lived, given Trump’s penchant for swift policy reversals. The president has indicated that he could also impose taxes on Chinese goods if Beijing blocks the sale of the social media app TikTok to a US entity. As one strategist put it, “It’s not going to be one-way trade in a Trump regime.”
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