The US Blinks While Hong Kong Sinks

This morning the Financial Times is reporting that the US administration is considering dropping tariffs on $112 billion of Chinese goods in return for a few goodies from China to get an interim trade deal across the line this month. One of those is that China’s President Xi will have to travel to the US for a signing ceremony, meaning his aids are probably dusting of the atlas to show him where Iowa is this morning. It could be interpreted as the US blinking first as the presidential impeachment hearings gather momentum, and we approach the holiday season and then an election year.

Off course this will all have to be signed off by President Trump, but it is hard to see it appearing in the media unless the President, in his wisdom and foresight, was seriously considering it. Wall Street’s three leading indices all closed at record highs overnight, almost entirely driven by trade optimism, and this news, should it be correct, will undoubtedly increase those tailwinds in Asia today.

Asia itself has been busy, with the Regional Comprehensive Economic Partnership (RCEP) looking like a done deal with the withdrawal of India from the negotiations. India was the last holdout for the RCEP, which spans the world from New Zealand to China and almost everyone else in between. With the Trans-Pacific Partnership (TPP) almost ready for signing as well, large parts of the world appear to be moving forward sans the US, (and India), on trade. No one can doubt the importance of the US consumer of last resort to the world, but the rest of the world is certainly not standing by idly to be beholden to it, or its President, in the future.

Things go from bad to worse in Hong Kong which officially entered a recession last week. Hong Kong Markit PMI plunged to 39.3 from 41.5 last week, a 21 year low not seen since the depths of the late 90’s Asia crisis. ( does anybody else remember that?) The ongoing protests and the ensuing disruption if anything, appear to be spreading rather than abating. Looking on the bright side of life, a resolution acceptable to both sides would see an equally aggressive rebound no doubt. It is just that it is hard to see what that resolution would be with Beijing in no mood for concessions. It will likely mean that the Hang Seng underperforms the rest of the region for the foreseeable future, especially some of their big-name banks.

The China Caixin Services PMI has just been released and has disappointed, falling to 51.1 against an expected print at 52.8. The composite PMI though has eked out a small gain to 52.0. The fallout should be limited though, as markets concentrate on the industrial PMI’s and their rebound potential if an interim trade deal is signed this month.

US Factory orders sank 0.60% overnight in another worrying sign that the trade war is not making America great. US data remains healthy overall but is slowing, and this may be focussing the White House’s mind on tariffs. The American President, as opposed to the Chinese one, is required to answer to voters every five years, and that time is coming uncomfortably close.

The RBA releases its interest rate decision at 1130 SGT and is expected to hold rates at a record low of 0.75%. The RBA preferring to let previous cuts work their way through the system whilst keeping one eye on the progress of the US-China trade dispute.


Wall Street’s major indices closed at record highs overnight, driven by trade optimism. The S&P500 rose 0.37% to 3078, the Nasdaq rose 0.56% to 8433, and the Dow Jones rose 0.42% to 27, 463. Under Armour, Uber and Shake Shack all felt the wrath of investors for missing earnings targets (losses in Uber’s case). However, Warren Buffet, a man who refuses to spell the word unicorn let alone utter it, did what he has always done, increased profits at his Berkshire Hathaway.

Regionally, the Australian ASX is almost flat with most participants at the racecourse or TAB. The Nikkei has returned from holiday and has made up for lost time, racing higher by 1.54%. The Kospi is 0.11% higher and the Singapore STI 0.18% higher, weighed by lacklustre results from OCBC and Capital Land.

The Shanghai Comp has shrugged off the Caixin PMI, posting a 060% gain this morning but the Hang Seng is flat, weighed down by the shocking Markit PMI.

Trade will, of course, continue to take centre-stage. With so much optimism and exuberance being built into financial markets, traders should watch for negative headlines surprises. Sentiment is a harsh mistress and a fickle one and comes in positive and negative versions.


The US dollar strengthened overnight as treasury yields rose slightly and international funds flowed into US equity markets. In the greater scheme of things, currency markets continue to await belligerently for an interim trade deal to get signed, rather than by into the hype. Having been burned by the US President’s, social media account before; they will not so easily be fooled again.

Assuming the Federal Reserve does what it says, and stays on hold for the foreseeable future, higher US yields than most of its G-10 contemporaries will continue to support the dollar into 2020. There may be temporary, even multi-week, dips along the way but yield differential will rule in the end until the US and China comprehensively sort out their trade dispute.

The dollar index rose 0.32% to 97.55, led by looses in JPY and CHF as the street continues its rotation out of haven currencies. Local currencies though, should benefit today from the positive developments on the regional trade deals, and continued progress, real or imagined, on the interim US-China trade agreement.


It was all about trade yet again overnight for energy markets. The positive noises from Washington DC lifting oil yet again overnight. Brent crude rose 0.70% to $62.45 a barrel, and WTI rose 0.65% to $56.50 a barrel.

In fact, both contracts printed much higher intra-day highs overnight to near $63.20 and $57.50 respectively. US factory orders probably took the edge of the rallies late in the session, leaving both contracts in the green but less spectacularly so by session’s end. It may suggest that the rallies in both contracts are reaching their maximum levels for now and that crude itself, could be vulnerable, perhaps aggressively so, if investor sentiment rapidly changes.


Gold disappointed and edged lower overnight as the dollar rose, investors rotating into equities and emerging markets as trade hopes increased. Gold fell 0.30% to $1509.00 an ounce.

The net result was that gold is now solidly back into its longer-term range of $1475.00 to $1520.00. It is developing a disturbing habit of whipsawing traders as it approaches each side of the range. It will take some sort of significant event to break gold from its lethargy, and that will most likely be a positive or negative trade development.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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