Asian Shares Down, but U.S. Markets Cautiously Rebound in Early Trade

The major Asian stock indexes finished lower on Tuesday as investors reacted to Monday’s weak trade on Wall Street. Yesterday, Beijing raised tariffs on some American goods in retaliation for the Trump administration’s decision last week to increase duties on Chinese products. Although the new tariffs were highly anticipated, U.S. stocks sold off sharply as investors sorted out the details.

In the cash market in Asia at 07:01 GMT, Japan’s Nikkei 225 Index is trading 21067.23, down 124.05 or -0.59 percent. Hong Kong’s Hang Seng Index is at 28056.40, down 493.84 or -1.73 percent. South Korea’s KOSPI Index is trading 2081.84, up 2.83 or +0.14 percent.

And the two markets most affected by U.S.-China relations, China’s Shanghai Index is trading 2882.39, down 21.33 or -0.73 percent and Australia’s S&P/ASX 200 Index is at 6239.90, down 57.70 or -0.92 percent.

Updated U.S.-China Scorecard

On Monday, China announced it will raise tariffs on $60 billion worth of U.S. goods, beginning on June 1. The U.S. imports include a broad range of agricultural products. This move was in retaliation to the White House raising duties on $200 billion in Chinese goods to 25% from 10%.

Also on Monday, Treasury Secretary Steven Mnuchin told CNBC the two countries are “still in negotiations.” Trump also said the U.S. is in a “great position,” noting that “our economy has been very powerful; theirs has not been.”

On Monday evening, Trump gave an estimate of when a breakthrough in negotiations with China could be announced. “We’ll let you know in three or four weeks if it’s successful,” he said, according to NBC News.

The Next Move

If nothing is accomplished over the next three or four weeks, the U.S. is expected to slap additional tariffs on China.

President Trump said on Monday that he still had not decided whether to hit China with an additional $300 billion worth of Chinese. However, according to reports, the Office of the U.S. Trade Representative formally began that process with a proposal on Monday. The USTR outlined a potential duty of up to 25% tariffs on China for goods with an annual trade value of roughly $300 billion.

U.S. Shares Bounce Back

The trade is cautious, however, U.S. equity futures are slightly positive well before the cash market opening. Investors are responding to mixed reviews from several investment professionals.

Analysts at Citi said its China economists are “cautiously optimistic that a trade deal can eventually be signed.” But added that the “window to avoid further escalations in US/China tensions is closing fast.”

“Ongoing trade flare-ups may continue to swing the stocks in the near-term, but we think the market may have priced a lot of this in.”

Morgan Stanley told clients that the new tariffs are likely to create headwinds for corporate earnings and the economy could fall into a recession if the country’s trade war keeps escalating.

J.P. Morgan told its clients to prepare for the worst saying, “… the remaining hurdles are critical and difficult. With the re-escalation of tariff war risks (and China vowed to retaliate), it is challenging to reach an agreement very soon.”