Trump hold-off on tariffs only a temporary reprieve for markets, analysts say
Asia markets post a mixed performance on Tuesday, with Chinese stocks ending mostly higher
AS CHINA and other Asian markets react to the pause in the US-China tariff war, analysts have said that it is only a temporary reprieve, and that much will depend on the scale of the tariffs imposed.
Donald Trump had initially threatened during his election campaign to impose tariffs of 10 to 20 per cent on global imports into the US, and 60 per cent on goods from China to help reduce a trade deficit.
On Monday (Jan 20), following his inauguration as US president, he made no mention of specific tariff plans against China, but said that he was considering a 25 per cent tariff on goods from Mexico and Canada. The action could come on Feb 1.
He also reiterated that he would create a new agency to collect tariffs and duties from foreign sources.
Glenn Thum, senior research analyst at Phillip Securities Research, told The Business Times: “This would give some reprieve to investors, as it would show that Trump is not as aggressive as initially thought. However, we still expect tariffs to come in, but are uncertain of the scale of said tariffs.”
He added: “An investor would hope that the agency being set up would have time to deliberate on which tariff would be the best and the global impact it would have, resulting in a sounder approach.”
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Thum added that trade tensions have already affected Asia, in particular China, at which the majority of tariffs are aimed.
They will probably, however, benefit Asean and Singapore, he indicated.
“We do expect a pickup in Asean, as supply chains and manufacturing get shifted away from China (to avoid the expected increase in tariffs) to Asean countries like Vietnam,” he said.
“Singapore looks poised to benefit from this, being the financial hub of the region. But uncertainty surrounding trade policies will continue to pose challenges.”
At the close, Asia markets were mixed on Tuesday, with Chinese stocks ending mostly higher.
Hong Kong’s Hang Seng Index gained 0.9 per cent. While the Shanghai Stock Exchange Composite Index fell 0.1 per cent, the Shenzhen Stock Exchange Composite Index rose 0.3 per cent, and the CSI 300 was up 0.1 per cent.
Japan’s Nikkei 225 was up 0.3 per cent, Australia’s ASX 200 gained 0.7 per cent, and the FTSE Bursa Malaysia KLCI rose 0.5 per cent.
Meanwhile, South Korea’s Kospi lost 0.1 per cent and Singapore’s Straits Times Index was down 0.3 per cent.
In Europe, the pan-European Stoxx 600 closed 0.05 per cent higher on Monday.
Nomura’s global markets research team said markets typically have a knee-jerk negative reaction whenever tariff threats are made, as seen from the US-China trade war in 2018-2019.
“A stabilisation in Asian equities will likely only occur once the spectre of tariffs is behind us. And we think we are clearly not there yet,” the team said in a research note.
The team expects that investors would need to brace themselves for bouts of volatility and regular whipsaws driven by news reports, market chatter and social-media posts regarding Trump’s policies, especially those related to tariffs and trade policy.
Dollar and commodities
The US dollar index fell in reaction. The greenback has been the immediate loser amid the lack of clarity around Trump’s trade tariffs, noted IG market strategist Yeap Jun Rong.
“Expectations of inflationary pressures from trade measures have been a key driver of the dollar’s strength in recent months,” he said.
“With positioning for the US dollar heavily leaning into extreme longs, any unwinding has triggered an outsized market reaction,” he added.
Australian bank ANZ said on Tuesday morning that markets are set to digest many developments this week.
“But if the implementation of trade and immigration policies do not negatively disrupt supply chains and the labour force, financial markets may unwind some of their recent inflation caution,” it said.
As for commodities, a weaker dollar supported gold prices.
“The report saw the USD tumble, easing headwinds for the broader commodity complex. It also offered a moment of relief to commodity markets, which have been concerned about the economic impact of such tariffs,” said ANZ. “Gold ended the session up as the potential for economic disruption from a trade war boosted haven demand.”
US oil prices, however, were down by more than US$1 per barrel in early Asian trade on Tuesday, after Trump announced plans to boost oil and gas production.
Bitcoin rose to a new record high of US$109,241 on Monday, before Trump’s inauguration, boosted by anticipation of his crypto-friendly policies.
Bitcoin had soared past US$100,000 initially after Trump won the presidential election in November, with the president having pledged to make the world’s largest economy the “crypto capital of the planet”.
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