Update On Trade War: Tensions Soured Trade Optimism

Previously, trade sentiment remained on the upside following reports stating that both sides are still struggling to reach consensus towards a phase one trade deal. US President Donald Trump also denied signing the Hong Kong bill, which supports the protesters after the Congress passed the bill. 

However, on early Thursday, White House confirmed that US President Trump had signed off the bill, showing his support for the Hong Kong protesters, while potentially jeopardizing US-China ties. The political unrest between China and Hong Kong led to more than half a year-long of protest, now causing tensions for trade negotiations between the US and China.

Previously, the market was anticipating leaders from either side to provide clarification on the current trade progress as the market was only flooded with mixed signals regarding the phase one trade deal from different media bodies. 

However, new signage of the Hong Kong bill by President Trump is now seen as a threat by China as a severe meddling of their internal affairs. China had since threatened to retaliate without providing any further details, but this would worsen the chances for both sides to reach a phase one trade deal. 

The Hong Kong bill passage signaled a less impact on the overall market dynamics, but the market is now waiting for further confirmation on how China would retaliate, causing new tensions in the market while shifting investors’ preference into safe-haven assets.    

 The investors’ quick response grabbed by the market onto the safe-haven assets as the confirmation of the signing of the bill can be shown in the chart below, where the USD/JPY pair dropped around 20 pips from its previous high.