Asia Stuck In Friday Tariff-Jam

The schizophrenic nature of the financial markets of late was highlighted overnight as the mid-week gloom turned to glee overnight. The medication used in this case was an announcement by the Chinese Commerce Ministry that China and the US had agreed to a phased roll-back in tariffs as part of an impending interim trade deal. The noise coming from Washington DC was not quite so upbeat, with reports of conflicts amongst White House advisors on the merits of the plan.

Still, financial markets weren’t going to let reality get in the way of a good story. The dollar surged higher, Wall Street indices rose to record highs, and US 10-year treasury yields jumped ten bps, rising through the 1.90% market. Yields, in particular, with the long-end of the curves in major developing markets creeping higher over the last month. Yes, even German Bunds, highlighting the perils of going all-in buying negative-yielding bonds in the hope that they get even more negative. Enjoy the fruits of that trade chaps.

That said, despite the lack of detail and a concrete timeline for even signing an interim trade deal, progress does at least appear to be being made. As ever, the caveat here is the unpredictable nature of the White House. After four Trump-pestuous years, though, markets appear to have accepted the US President as a “known unknown.” Like eating a dodgy prawn, sometimes life chucks you lemons, and you have to suck it up.

German Industrial Production overnight tanked again to -0.60%, highlighting the effects of the trade-war and associated global slowdown on Europe’s engine room. The news hasn’t been all bad though with the European Area Retail Sales and Markit Services Composite PMI outperforming overnight. Green shoots maybe, but it is still far to soon to assume the light at the end of the tunnel is not the training coming the other way.

Regional data this morning has been impressive at face value. Australian Home Loans for September jumped an above forecast 2.20%(1.30% Exp). Before everyone gets though; wait. Australian home loans have been pimped up recent RBA rate cuts to record lows, resuscitating the housing market. That has not delivered oxygen to the high street or the non-resource domestic economy, which remains in intensive care. If anything, Australia is driving headlong into a stagflation corner with a housing bubble and rising costs but falling real incomes. Quantitative easing is closer then you think in Australia. I’m not sure if it will help or hinder, however.

Japan Household Spending in September leapt a mighty 5.50% MoM, and 9.50% YoY. Temper that global recovery enthusiasm though for a moment as I pop on my voice of reason hat. After 30 years of deflation, Mrs Wattanabe is not taking her savings from the box under the bed and deciding to consume in an inflationary manner. Instead, the Japan sales tax rose from 8 to 10% on the 1st of October. The spike is likely due to a consumer rush before the tax rise started and we will see regular service resuming soon enough. I would love to be proven wrong.

China releases its Balance of Payments at 1100 SGT this morning with both exports and imports expected to slump by 4.0% and 9.0% respectively. A cynic might say the Chinese Commerce Ministry’s announcement yesterday was remarkably well-timed, ahead of today’s data. Being a Friday and with my coffee delivered, I prefer to be more glass half full. The trade story overnight should mean that no matter how awful the BOP data is, and imports, in particular, the fall-out will be limited to non-existent on both Chinese and regional markets. As I have said before, timing is everything.

Have a tariff-ic Friday.


Wall Streets gains on the tariff plans announced by China, were tempered by reports of conflicts within the White House about them. Nevertheless, welcome news it was, and Wall Street’s major indices all carved out gains staying at or near record highs. The S&P 500 and Nasdaq both rose 0.28%, and the Dow Jones Industrial Average was up 0.66%.

Asia though is refusing to follow Wall Street’s lead. Although the Nikkei 225 and Shanghai Comp are both flat after initial rises, with the Hang Seng and Straits Times Index are lower by 0.60%, and the Kospi is down 0.30%. Asian equity markets may be seeing some lightening of long positioning ahead of the weekend, but may also be nervous about reports from within the White House that the interim trade agreement is not a done deal. That said, progress on a tentative trade deal seems to be moving forward, and this should limit the fall-out on Asian stock markets today.


The dollar rose sharply overnight against developed market currencies, supported by higher US yields and positive reports on the progress of trade talks. The Japanese Yen continued to suffer from the rotation out of safe-havens with USD/JPY rising to 109.20 overnight, just below daily resistance at 109.30. The dollar index gained 0.20% to 98.20.

The offshore renminbi (CNH), continues to lead the developing market charge higher on trade-talk progress. The USD/CNH fell 0.60% to 6.9710 overnight consolidating its gains below the 7.0000 pivot level. Barring any negative surprises on the trade front, regional currencies should continue to make upward progress against the dollar for now. It will be a welcome development for many local economies as it will give their central banks room to ease if necessary.


Oil rose overnight, boosted by apparent trade-talk progress. Brent crude rose 0.90% to $62.30 a barrel and WTI rose 1.25% to $57.05 a barrel. Oil has had consolidative week overall, buffeted by daily changes in sentiment and trade narratives. The consolidation though has been towards the top their recent ranges suggesting that more concrete positive trade developments could spur both contracts higher still.

Asia has seen some profit-taking in early trade with both contracts lower by 0.25%. Oil appears to be following the local equity market’s leads and adopting a more cautious stance on the trade progress ahead of the weekend.


Gold melted down overnight, falling over 20 dollars an ounce, or 1.50% to $1468.50 an ounce. The positive trade comments from both the US and Chinese sides were, of course, the culprit, as investors rotated out of haven positioning.

Gold traded as low as critical longer-term support at $1460.00 before rallying into its close on intra-day profit-taking, from which beleaguered longs can draw some comfort. Closing below weekly support at $1475.00 leaves the technical picture remaining ominous. A daily close below $1460.00 this evening implies a deeper correction to $1440.00 an ounce is possible.

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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