Traders barely flinch at trade war moves, as global markets ignore Trump’s tariff tirade

London — Who’s afraid of the big bad trade war? Not world stock markets it seems.

The response to US President Donald Trump’s decision to go ahead next week with collecting 10% tariffs on another $200bn worth of Chinese goods, ratcheting up to 25% in January, was unusual and unexpected on Tuesday.

It initially hit US stocks, treasuries and the dollar while stirring a rally in Chinese equities and the yuan in Asia. China then confirmed it would retaliate, but still traders barely flinched.

European stocks gained more than a third of a percent, on course for a third day of gains, Wall Street futures climbed and even copper and the Australian dollar, which have been highly sensitive to the trade tension in recent months, held firm.

“In a way it is remarkable that the market is holding up so well,” said Rabobank’s head of macro strategy Elwin de Groot.

“This is clearly a further ratcheting up of the trade war and we are now getting close to a situation where you can almost speak of a full-fledged trade war. Clearly that is not positive.” One theory for the becalmed reaction was that the $200bn US move had been largely priced in to markets following weeks of reports and social media speculation.

Chinese shares did dip initially as Asia digested the details but then rallied to push the blue-chip CSI index up 2%. Some locals were betting that Beijing will step up infrastructure investment to keep the economy humming.

Japan’s Nikkei also ended 1.4% higher and MSCI’s 24-country emerging market index was up for the fourth day in the last five as a 1% gain in Poland and a 0.7% rise in Russia added to Asia’s rebound.

Trump’s announcement “is largely consistent with the claims made earlier,” Citi analysts said in a note, estimating a 33 basis-points drag on China’s economic growth from the 10% tariff.

However, “The trade war may get worse before it gets better. A full-blown trade war looms closer now,” they added.

China’s promise to respond to the new US tariffs also came as The South China Morning Post newspaper reported Beijing was reviewing plans to send a delegation headed by vice-premier Liu He to Washington for trade talks.

Liquidating shorts

In currencies, the dollar was broadly flat at 94.438 although on an individual basis it was a fraction firmer against the Japanese yen at just shy of ¥112.

Source: businesslive.co.za