In a recent trade war escalation, the United States started imposing a new round of tariffs of 15% on a range of Chinese goods on September 01, 2019. This included items like smartwatches, flat-panel televisions and footwear. On the same time, the Beijing government started levying new duties on the crude oil imported from the United States. These developments are again going to hurt the global investor sentiment.
However, despite the recent escalation initiated by the large economies, the US president commented that still, both sides will meet later this month to talk upon it.
The US government on September 01, 2019, started collecting 15% tariff on more than $125bn from Chinese imports – comprising Bluetooth headphones, smart speakers and clothing. In retaliation to the tariffs imposed by the Trump administration, Beijing slapped US goods with additional tariffs on a $75bn target list. However, the Chinese government did not specify the list of items that face tariffs from September 01, 2019, but from September 01, the Chinese government levied 5% tariff on the WTI Crude, making it the first time that the oil had been targeted since US-China initiated their trade war more than a year ago. China also imposed extra duties of 5% and 10% on good 1,717 items of a total of 5,078 products coming out from the United States, though the Chinese government will not start collecting additional tariffs immediately from rest of the items, but it will start from December 15, 2019.
The US President Donald Trump wrote on Twitter and communicated that his goal is to bring down the reliability on Beijing, and again he urged US companies to seek alternate suppliers outside China.
After the Trump administrations’ decision, several studies conducted over in the United States suggests that this is going to increase the household bills of the US citizens by approximately $1,000/p.a.
Meanwhile, reactions started pouring in from different impacted organisations, the executive vice president of the American Apparel & Footwear Association, Steve Lemar stated that the fresh tariffs on footwear just came ahead of the peak selling season of the year. He also added that, though the government claimed that this is impacting Beijing, but in reality, it is going to affect us adversely, and this will lead to increased footwear prices, lower sales and will cost jobs as well.
Since trade spat started between the two large economies, the US government has raised their voice to put pressure on the Chinese government to make some course correction to its policies on intellectual property protection and transfer the technologies on Chinese firms.
However, Beijing has continuously denied allegations raised by Trump administration that it is involved in unfair trade practices and criticised US measures as protectionist. Beijing is pressurising the Trump administration to call off the tariffs increase.
Meanwhile, stock indices in the Asia Pacific depicted a mixed trend, and Shanghai Composite added 37.87 points or 1.31% to snap the trade at 2,924.11, the major Australian index ASX 200 ended 24.80 points or 0.38% lower at 6,579.40, the Hong Kong’s Hang Seng ended 98.18 points or 0.38% lower at 25,626.55 and Japan’s Nikkei 225 fell off 84.18 points or 0.41% against the previous close at 20, 620.19.
Safe-haven assets like Gold and Yen rises amid a fresh round of trade escalation between US-China
After a fresh round of trade war escalation, which is bruising US-China trade, the yellow metal – Gold prices started surging on September 02, 2019, as demand for Gold rise post fresh round of tariffs imposition by both the countries, adding fuel to the global economic slowdown. Also, the Hedge fund managers created long positions in silver contracts while raising their bullish bet on gold. The trading in the United States is likely to remain subdued coming after a long weekend, as stock markets in the United States will remain closed on Monday for Labour day holiday.
Gold futures were also up by 1.4 points or 0.09% to $1,530.85/ ounce, and gold has risen more than $100 in August 2019. On a YoY basis, gold prices have surged more than 24%. In the year-ago period, it has registered a 52w low of 1,201.3 and a 52w high of 1,565 respectively and at the current trading level, it was quoting approximately 27% above the 52w low price level and marginally below its 52w high price level.
The Japanese yen also rose on Monday, post new tariffs imposed by both the US and China on each other. The yen surged approximately 0.12% against the Dollar to 106.10 and touched a day’s high of 105.94 and a low of 106.36 respectively. Yen, like gold, tends to find favour during tough economic times as investors were drawn to so-called riskless bet.
The dollar index declined against the basket of six major currencies and was down by 0.01% to 98.80 in the September 02, 2019 trading session (before the market close).
The yen advanced approximately 0.2% against the Australian dollar and stood at 71.42 and was approximately 0.19% higher against the New Zealand dollar to 66.93.
Meanwhile, China’s manufacturing output unexpectedly edged up in August 2019, according to data revealed by Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) on September 02, 2019. However, many market experts are arguing that the expansion is not sustainable as manufacturing orders declined and called the expansion temporary.
Trade escalation impact on the UK’s financial market
Despite recent round of tariff imposition exercised by both US and China, the financial markets in the UK were edging higher on Monday, 2nd of September 2019, with the FTSE 100 index rising approximately 70.10 points or 0.97% to 7,277.28, the FTSE 250 index added 76.84 points or 0.40% against the previous closing level and was quoting at 19,470.47, the FTSE 350 index leapt up 34.78 points or 0.87% to 4,043.80 and the FTSE All Share was up by 34.38 points or 0.87% to 3,987.40 respectively, as on September 02, 2019, before the market close.
Almost every constituent sectors of the FTSE 100 index are trading higher in the September 02, 2019 market session, with Healthcare, Consumer non-cyclic and Industrials among the top-performing sectors moving up by 1.95%, 1.53% and 1.20% respectively and stocks like AstraZeneca PLC, Tesco PLC and Experian PLC are among the top-performing stocks on the broader index of the FTSE 100, up by 2.98%, 2.22% and 2.19% respectively, at the time of writing before the market close.
The Brexit cues
The impact of the US-Sino trade war is likely to be a double whammy for the UK, where the Brexit crisis is deepening as the United Kingdom is all set to crash out of the European Union in less than 60 days, at least till now, three years after the referendum showed the British public wanted to get out the cumbersome agreement that apparently stifled the rights and growth of the nation to “take back control” in their hands. The seemingly smooth process has cost the job of two prime ministers, with the lifeline of the third on edge. But the new prime minister, Boris Johnson, has bought new vigour to the Downing Street 10 and has instilled new hope in the public, with a continued anxiousness for the future. And the new government had started preparation for the worst scenario after Mrs Theresa May, former prime minister, failed to get her deal through the parliament thrice. Mr Johnson has given an impression that he has a serious intention to take Britain out of the EU on 31 October, with or without a deal, and this is the principal objective of his appointment and future negotiation with the EU. He warned that unless the EU leaders renegotiate the withdrawal treaty agreed last year with Mrs May, the leaders must not expect an amicable divorce, which the bloc has resoundingly rejected and called his demands as a non-starter. The EU has been assuming that the rhetoric of the new prime minister should not be taken at face value and have stuck their ground till now. But the appointment of Mr Johnson has given credibility to the danger of a hard-Brexit, at a time when the EU’s economy looks fragile.
Uncertainties related to the Brexit are deepening further. As on August 20, 2019, the European Union discarded British Prime Minister’s demand to reopen the backstop negotiations. In response to the demand raised by Boris Johnson, the European Union commented that the UK had failed to come up with any proper realistic alternative arrangement to an insurance policy for the Irish border. However, Britain is facing multi headwinds, some of those are coming from the global market, while some of them are internal, made in the UK. Post-EU bloc rebuffed further talks on the withdrawal deal; it is very likely that the UK will crash out of the EU bloc on October 31, 2019, without any formal deal.