Traders saw strong reversals across the board yesterday as the market reacted to the unexpected news from the US. Some of the goods due to be under new tariffs from September 1st will now be exempt until a later date. In a statement released yesterday, US Trade Representative Robert Lighthizer explained that the US is delaying imposing tariffs on some imports from China until 15 December because of
“health, safety, national security and other factors”.
Trump’s “Gift” To US Shoppers
Among the products due to have tariffs postponed are mobile phones, laptops, video game consoles, some toys, computer monitors, and certain footwear and clothing. Speaking with reporters as he left a rally in Pittsburgh, President Trump said “We’re doing this for the Christmas season,” to avoid hurting US shoppers.
The news was welcomed by traders following the recent deterioration in relations between the US and China and the growing fear that trade talks would be abandoned. Two weeks ago, Trump unexpectedly announced a fresh set of 10% tariffs due to be applied to a further $300 billion of Chinese goods as of September 1st.
Lists published by the USTR show that a broad category of items taken off a $200bn tariff list last year are due to be subject to the 10% tariff as of 1st September. This list includes major products such as smartwatches by Apple and Fitbit, smart speakers by Amazon and Apple and Alphabet’s Google and Bluetooth connected devices.
News of the fresh tariffs was met with immediate counteraction from china. This in turn sharply devalued the Yuan. It sent USDCNH over 7 for the first time since the global financial crisis in 2008. The US then responded by issuing a statement labeling China a currency manipulator. The PBoC then issued its own statement in response denying the claims and accusing the US of maliciously targeting them.
Trade Talk Hopes
However, the announcement of a delay to some of the tariffs has been met by a wave of relief across asset markets. Although just a first step, traders are hopeful that this move will be enough to keep trade talks intact. Indeed, the more optimistic among forecasters are now hoping that China will be ready to work with the US properly to avoid the tariffs which could be scrapped altogether.
Trump Under Fire Over Hong Kong Protests
However, there are those who have criticized Trump for backing down from China. They have said that he has now given them an edge in the negotiations. This also comes at a time when the president is under scrutiny over his soft dealings with China regarding the treatment of protesters in Hong Kong. Writing on Twitter, Trump said of the situation:
“I hope it works out for everybody including China. I hope it works out peacefully, nobody gets hurt, nobody gets killed.”
This tweet was followed by Trump saying that US intelligence
“has informed us that the Chinese Government is moving troops to the border with Hong Kong. Everyone should be calm and safe!“
The cross-market reaction saw a bounce in equities, which sapped the safe-haven flows into JPY and gold. This sent USDJPY surging higher. Price has recovered strongly off the 105.03 lows. However, for now, the move has been capped by the 106.77 level resistance. Price is stalling in the middle of the bearish channel from year to date highs. While below here, focus is on further downside in the near term. A move above here will bring the channel top into focus next, with the next big structural level above at 108.99.