Risk-on across the board as Trump postpones tariff increase

6:57 AM September 12, 2019

Summary:

  • At the request of the Chinese Vice Premier, Donald Trump has decided to postpone an increase of tariffs, which were initially scheduled for October 1, until October 15
  • China mulls over increasing purchases of US agricultural products ahead of face-to-face negotiations in Washington next month
  • Asian equities move up with Japan and South Korea leading the gains, AUD and NZD on the rise too, while the US 10Y bond yield hovers above 1.75%

Gesture of goodwill

US President Donald Trump has decided to push back by two weeks a tariff increase on $250 billion of Chinese goods being initially scheduled for October 1. Therefore, a 5 percentage point increase has been moved to October 15. As Trump informed on his Twitter account, this decision came “at the request of the Vice Premier of China, Lie He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary on October 1,” He added that “we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th.” Such a gesture has undoubtedly lifted risk sentiment across markets, even though it does not mean any tipping point in the dispute between the two feuding countries. Let us recall that China announced on Wednesday that it would not exempt soybeans, corn and pork from duties, nevertheless it decided to do so regarding other goods, signalling that further exemptions were possible. 

Chinese response lifts risk appetite

Meanwhile, China has informed this morning that it is considering to ramp up imports of US agricultural products ahead of talks as a sign of goodwill (to be precise, China would allow companies to resume purchases of US agricultural products). Initial revelations suggest that among the products being considered by Beijiing are soybeans and pork. These reports have encouraged investors to look more leniently at riskier assets, that is why Asian equities are going up this morning, however, gains are notably differentiated. While Japanese NIKKEI and South Korean KOSPI are the leading indices being up by 1% and 0.8% respectively, other ones like Shanghai Composite, Hang Seng and S&P/ASX 200 are rising much more moderately (a range of 0.2-0.4%). Improved risk appetite is also shared among FX investors with the Aussie and kiwi being the best performing major currencies (they are up by 0.3% and 0.4% respectively). At the same time, the Japanese yen is going down by 0.2% while the Swiss franc and the US dollar are treading water. Looking broader, one may also notice a noticeable 0.4% pick-up in the renminbi, which can also be seen as a reassuring signal for Donald Trump. Finally, the US 10Y bond yield is hovering at around 1.75% this morning after climbing several basis points on Wednesday. Do note that the yield has already risen 20 basis points since the start of this week.

The NZDUSD is licking its wounds this week after experiencing sharp declines in the past weeks. From a technical point of view, the first major obstacle could be faced by bulls nearby 0.65. Source: xStation5

In the other news:

  • New Zealand’s food prices increased 0.7% MoM in August, after rising 1.1% MoM in July

  • Japanese PPI declined 0.9% YoY in August, after falling 0.6% YoY in the prior month

  • Japanese core machine orders declined 6.6% MoM in July, after rising as much as 13.9% MoM in June, the consensus had called for an 8% MoM decrease though

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