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Traders cast wary eye towards 2019
A BIT of hope. Superficially positive. Still a work in progress.
The reactions of investors and analysts to the outcome of Donald Trump and Xi Jinping's trade-focused dinner on Saturday suggest markets are unlikely to embark on a lung-bursting risk rally. The avoidance of any escalation in the dispute, however, may bring some relief.
- Olivier d'Assier, head of applied research for APAC at Axioma Inc: Risk assets such as equities will have a good week, but the big rebalancing into bonds ahead of the next down cycle in the economy will continue. With two more Fed rate hikes (at least) on the cards, yield curve inversion is still in play for the early part of next year. The halt to trade hostilities and no more tariffs for a while is probably good enough for a relief rally in both the US and China's markets, but not enough to change the current outlook for next year and stop the global economy from slowing down.
- Theodore Ball and Ariel Shi at JPMorgan Chase & Co: Neither side has made serious concessions, and a deal at the working level remains very challenging given how far apart the two sides are. This outcome should support the ongoing year-end rally but, like the Fed's dovish shift, is only superficially positive and next year looks more difficult than even 2018.
- Jean-Charles Sambor, deputy head, emerging-market debt, BNP Paribas Asset Management: While the long-term outcome remains uncertain, and we do think that trade tensions will remain elevated in the foreseeable future, we think that there is still too much negativity priced in, and we should be poised for a rebound in the short term. We think that both sides will work hard to reach a deal. It will be a bumpy road but there is definitely a window of opportunity.
- Aninda Mitra, senior sovereign analyst at BNY Mellon Investment Management: I would see this is as a short-term risk-positive development, and safe havens should underperform in coming days. The markets will be elated. However, I would look out for the details and keep an eye on the 90-day-plus horizon.
- Shane Oliver, head of investment strategy at AMP Capital Investors: This development will take a bit of upward pressure off the US dollar and it'll be good news for emerging-market currencies. We will see fairly decent rallies when markets open on Monday. Trade-sensitive currencies such as the Korean won should get a boost, as will the Australian dollar. It would be wrong to say the trade issue is totally behind us but for now it does provide a bit of hope that some resolution, a permanent one even, will be reached some time next year.
- Frances Cheung, head of Asia macro strategy at Westpac Banking Corp: This is the best outcome that we had hoped for out of this meeting. Although some optimism had been built in the price, Asian currencies may still be able to rally. However, this is better seen as a temporary truce and uncertainty on US-China trade relations remains.
- Stephen Innes, head of the Asia-Pacific trading at Oanda Corp: It will be interesting to see how the broader markets interpret these latest trade events after trudging through an extended period of arduous de-risking/re-risking that was driving trading desks batty. But the question remains: was there enough meat in this dinner bone to go full-bore "risk on" into the holiday season? The great ideological divide between the bastion of free-market capitalism and the champion of state-driven capitalism is still an immense work-in-progress but the weekend developments have increased threefold the scope for a broader de-escalation in trade matters.
- Tsutomu Soma, general manager of the investment trust and fixed-income department at SBI Securities Co: It looks like the winning ratio was 8 to 2 with the US on the winning side. China effectively has been given a huge task to tackle going forward. China probably had no choice but to avoid a head-on collision as its economy is currently in a slowdown cycle, and to avoid any further weakening. For now, the knee-jerk reaction for the market would probably be slightly risk-on with the event risk having passed in a peaceful manner.
- Maximillian Lin, an emerging-markets Asia strategist at NatWest Markets Plc: For markets, it's a very positive outcome overall relative to my initial expectations. Although the tariff hike from 10 per cent to 25 per cent was extended by three months, and long-term uncertainty remains, it does set positive momentum for further negotiations. Even a "best-case" scenario outcome would not have resolved everything, since a dinner is too short to permanently resolve all the long-standing issues.
- Daniel Been, head of FX research at Australia & New Zealand Banking Group Ltd: The meeting had bought time for compromises to be found and this will act as a tailwind to risk appetite over the year-end after a difficult year, particularly in emerging markets. Looking further out, we remain cautious as little has actually been resolved. We see this more as kicking the can down the road.
- Ronald Chan, chief investment officer of equities for Asia ex-Japan at Manulife Asset Management: Markets have probably seen the peak of trade frictions between the two countries.
Markets and sectors that have been most impacted should respond positively to the outcome in the near term, in particular, China-A shares, North Asian bourses, and exporters.
- Sue Trinh, head of Asia FX strategy at RBC Capital Markets: For markets, there will be a sense of short-term relief that tariffs aren't going higher on 1 January. But we think the market had priced in a lot of positive news already after being flagged all month by both sides. A lot will depend on developments in the next 90 days, but given the US and China are on different pages, we don't think the optimism can last. BLOOMBERG