Asian Markets Down, U.S. Futures Pressured Early as Investors Brace for China RetaliationThe price action in Asia and the early movement in the U.S. is likely investors pricing in the widely expected tariff retaliation by China. Once this decision is announced, conditions could calm and we could see an intraday rebound rally just like we saw several times last week.
The major Asia/Pacific stock indexes are trading lower on Monday, bucking the positive trend in the U.S. equity markets from Friday, while focusing on the lack of fresh developments over U.S.-China relations over the week-end.
Low volume and public holidays could add to volatile trading conditions at the start of the week, but “risk-off” is expected to continue to be the theme this week after the U.S. raised tariffs on Chinese imports on Friday, and investors brace for retaliation by the world’s second largest economy later this week.
In the cash market at 06:32 GMT, China’s Shanghai Index is trading 2895.84, down 43.37 or -1.48%. Japan’s NIKKEI 225 is at 21191.28, down 153.64 or -0.72 percent. South Korea’s KOSPI Index is at 2080.06, down 27.98 or -1.33 percent and Australia’s S&P/ASX 200 is trading 6297.60, down 13.30 or -0.21 percent. The Hang Seng Index in Hong Kong is closed for a holiday.
“Lack of activity data and public holidays in some countries will make it a slow start of the week for Asian markets. But the risk-off continues with the escalation of US-China trade war after last Friday’s move by the US to raise tariffs on Chinese goods. All eyes are on China’s retaliation,” Prakash Sakpal, Asia economist at Dutch bank ING, wrote in a note.
In the U.S., early futures trading indicates the Dow Jones Industrial Average is expected to open about 250 points lower.
Latest U.S.-China Developments
Friday’s trade talks failed to accomplish anything so a trade agreement will be further delayed. There was a fresh development, however. The U.S. raised tariffs from 10% to 25% on $200 billion worth of Chinese goods.
Over the week-end in an interview with Fox News on Sunday, White House Economic Advisor Larry Kudlow said U.S. President Donald Trump and Chinese President Xi Jinping are likely to meet at the upcoming June G-20 summit in Japan.
Kudlow said the chances of such a meeting “were pretty good,” but he said there are “no concrete, definite plans” for when U.S. and Chinese negotiators will meet again.
Retaliation Reaction – Then What?
The price action in Asia and the early movement in the U.S. is likely investors pricing in the widely expected tariff retaliation by China. Once this decision is announced, conditions could calm and we could see an intraday rebound rally just like we saw several times last week.