02 August 2018 ( Lagos ): Trade concerns between the world’s largest two economies returned to haunt markets on Thursday after President Trump ordered his administration to consider more than doubling previously proposed tariffs on $200 billion worth of Chinese goods. The new proposed tariffs of 25% dragged Asian equities heavily during morning trade, sending the Hang Seng Index to its lowest level since September 2017. China’s CSI 300 and Shanghai Composite both fell more than 2.5%, while the Yuan continued to trade near its

one-year low.  

Given the increased trade tensions, investors are keen to know what Chinese authorities will do next to prevent further heavy falls in equity markets. We think easing fiscal and monetary policies further will be the key tools for now. However, it will be interesting to see whether China will start using a more dangerous weapon against the U.S. and selling large portions of the $1.2 trillion of Treasury Bonds it currently holds.  Such a threat would lead to a huge spike in Treasury yields, making borrowing costs higher for the government, corporations and consumers. If China uses this weapon, we will see panic selling in the U.S. and global equities, but it seems Chinese authorities are preserving this move for later.

Source: Hussein Sayed, Chief Market Strategist at FXTM

Reporting for EasyKobo on Thursday 02 August 2018 in Lagos, Nigeria