The last week of August began with a considerable shock on many markets, both stocks and currencies or bonds. The main playmaker became again the President of the United States Donald Trump and his trade war with China.
On Friday, August 23 after 11 pm. Donald Trump announced an increase in tariffs on Chinese products. This happened after, also on Friday, China introduced retaliatory tariffs on USD 75 billion worth of US products. Trump said China should not have imposed new tariffs on US products. As a consequence, from October 1, Chinese goods worth USD 250 billion, which are currently taxed at a rate of 25 percent, will be taxed at a rate of 30 percent. In addition, other USD 300 billion worth of Chinese products that were taxed from September 1 at a rate of 10 percent will now be taxed by a 15 percent.
Such information already after the close of trading on Friday hit the markets with great impetus at the beginning of the last week of August. The USD/JPY exchange rate fell below 105.00 yen per dollar at night, beating the low after a sudden collapse at the beginning of this year. As a result, we saw the lowest level in three years. The AUD/USD exchange rate fell to the lowest level in three weeks. The NZD/USD exchange rate fell by over 1 percent to the lowest level since September 2015. In turn, on the American bond market the 10-year yield was at the lowest level in August 2016, falling to around 1.47 percent.
A respite for investors brought a statement that came from China. Chinese Deputy Prime Minister Liu told the media that China is willing to solve the problem through a peaceful dialogue. He added that China strongly opposes technological restrictions and protectionism in trade. This morning also Donald Trump announced that China wants to resume trade talks. This calmed the moods in the markets, and the rapidly falling prices at night began to turn back.
Volatility in the morning was above average and it seems that we may still expect scuffles between the US and China, as well as pressure on the Fed from Trump, who rhetorically asked who is the bigger enemy, or Jerome Powell, who does not want to cut interest rates heavily and quickly or president of China.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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