Who’s afraid of the big bad trade war? Not world stock markets, it seems. The response to US President Donald Trump’s decision to go ahead next week with collecting 10 per cent tariffs on another $200 billion of Chinese goods, ratcheting up to 25 per cent in January, was unusual and unexpected yesterday.
Mr Trump’s measures initially hit US stocks, Treasuries and the dollar while stirring a rally in Chinese equities and the yuan.
China then retaliated just before United States markets were due to open with $60 billion worth of tariffs of its own but still traders barely flinched.
European stocks wobbled slightly but Wall Street futures still pointed to a steady start and even copper and the Aussie dollar, which have been highly sensitive to the trade tensions, made good ground.
One theory for the becalmed reaction was that the $200 billion US move had been largely priced in to markets following weeks of hinting reports and social media speculation.
Chinese shares had initially dipped as Asia digested the details but then rallied to close up two per cent as some locals bet on Beijing stepping up infrastructure investment to keep the economy humming.
Japan’s Nikkei also ended 1.4 per cent higher and MSCI’s 24-country emerging market index was up for the fourth day in the last five as 1.3 per cent gains in Poland and Russia added to Asia’s rebound.
US stock exchange futures were all around 0.2 per cent higher, with a rise in oil prices expected to lift oil majors and on relief that the tariffs on Chinese goods had spared high-tech gadgets like smart watches.
Despite all the noise, the widely-tracked dollar currency index was broadly flat at 94.438 although on an individual basis it rose against the Japanese yen to just over 112.20 and took 1.7 per cent off Turkey’s troubled lira.
At the same time it was down slightly against the Chinese yuan in ‘offshore’ markets. The sensitive Australian dollar also moved up 0.3 per cent to $0.72 having also initially been hit when the tariff details broke.
With FX participants wary that Beijing authorities may quickly step in to markets at any point, investors were “spontaneously” liquidating their short yuan positions said a trader at one Chinese bank.
Oil prices had been down in Asia and through most of the European morning session but then went on a tear as fresh signs emerged that Opec doesn’t plan to raise output to offset shrinking supplies from Iran.
International benchmark Brent futures jumped over a dollar to $79.21 per barrel, while US crude futures bounced up to just shy of $70 a barrel.
Copper prices surged two per cent too and gold had also clawed itself into positive territory at $1,200 having been struggling for most of the day.