Asian equities head lower as no trade deal reached yet

Summary:

• No trade agreement reached during the talks in Washington
• Donald Trump certain he will get a second term in office, “a Democrat win means they would continue to rip off the USA for $500 billion a year”, he said
• High-beta currencies trade lower this morning, Asian equities largely decline

Deadlock continues

Another round of trade negotiations between the United States and China in Washington last week failed to lead any agreement. As a result, a US tariff increase (introduced on Friday) on $200 billion of Chinese goods is likely to stay in place at least for some time. Let us remind that the negotiations started on Thursday and were continued over the weekend. As CNBC reports, the US demanded promises of concrete changes to Chinese law, however, Beijing refused to swallow any “bitter fruit” harming its interests. Meanwhile, US President Donald Trump continued weighing in on this topic tweeting that a trade deal will be far worse for China in his second term in office. He also added that “they (China) know I am going to win” suggesting that a Democrat win would mean China would continue ripping off the US for $500 billion a year. In turn, White House economic adviser Larry Kudlow told Fox News that China needs to agree to very strong enforcement provisions for an eventual deal. Kudlow also suggested that a meeting between Trump and Xi could take place during the G20 summit in Japan in late June. Let us also recall that Donald Trump had tweeted on Friday that “there is no rush on Chinese trade talks”, the tweet was deleted and reposted once again. The trade negotiations are now expected to continue in Beijing.

Market reaction

In response to a series of disappointing revelations from the trade front Asian equities are trading largely lower this morning. The Shanghai Composite is declining 1.1%, the Japanese NIKKEI (JAP225) is falling 0.8% while the Australian S&P/ASX 200 is going down 0.4%. Looking at SP500 futures one may arrive at a similar conclusion as they are pointing to a 1% decline at the opening. Risk-off is also seen in the currency market where the Australian dollar is leading the losses being down 0.4% against the US dollar. On the other side, the Japanese yen is strengthening roughly 0.2%.

The AUDUSD is approaching the important demand zone in early Europea trading. Once this area is broken, then there could be space for declines at least toward the lower end of the bearish channel (better seen at a higher interval). Source: xStation5

The Japanese NIKKEI saw a huge decline last week. The price finished the week at the lower end of the bullish channel. Technically this could a decent level for bulls to try to push the price back toward 21800 points. Source: xStation5

In the other news:

• May promises to reopen Brexit talks with the European Union and rekindle negotiations with the Labour to take the UK out by summer

• New Zealand’s food prices fell 0.1% MoM in April after rising 0.5% MoM in March