Stocks continue falling, China releases white paper on trade talks

Summary:

• Asian equity markets decline at the beginning of the new week following a heavy sell-off on Wall Street
• China released the white paper regarding trade negotiations with the US
• The US decided not to impose tariffs on Australia

Chinese white paper

The beginning of the new week across equity markets in Asia has not been successful as most of them have continued falling. This downbeat performance came on Friday after Donald Trump said the US would impose a 5% tariff rate on all goods imported from Mexico in a bid to deal with a so-called migration crisis. Although Mexican President Lopez Obrador does not seem to be concerned with a trade dispute with the US, this issue could become more long-lasting and thereby weighing on financial markets. Obrador said over the weekend that a chance of no deal on a border dispute was a remote possibility adding that officials from both countries would meet on Wednesday to negotiate. He also added that the USMCA, a trade agreement which is to replace the NAFTA, would be ratified anyway. Meanwhile, the Chinese government released the white paper on Sunday regarding trade talks with the US. The document said explicitly that the escalating trade war between the world’s two largest economies has not made America great again. It underlined that protectionist steps already did serious harm to the US economy by rising production costs or causing price rises. China confirmed that a removal all additional tariffs by the US was the prerequisite for a trade deal. On top of that, the white paper signalled that China did not want a trade war with the US but would not shy away from one. By and large, there is no doubt that Beijing expresses some willingness to continue negotiations with Washington, however, not under a threat of higher tariffs if something goes wrong once again. This is a key sticking point leaving the trade tussle still unsolved.

The NASDAQ (US100) keeps falling this morning after seeing four weeks of consecutive declines. Technically the price has already approached the local support in the form of the 38.2% retracement of the latest leg higher. Nevertheless, having regard to downbeat moods present in Asia, investors in the US could struggle to see a livelier recovery on Monday. Another noteworthy support is localized in the vicinity of the 50% retracement, slightly above 6800 points. Source: xStation5

US won’t slap tariffs on Australian goods

On the one hand, the start to the new week has brought widespread declines in Asia with the Shanghai Composite going down more than 1.1% at the time of writing, on the other hand, the US dollar is losing momentum while Antipodean currencies are leading the gains. This weird behaviour in the FX market could stem from the fact that the United States will not decide to impose tariffs on goods imported from Australia, a NY Times article says. It adds that the Trump administration considered such a move last week, but it backed away from it amid fierce opposition from military officials and the State Department. This could give some hope that Donald Trump will not extend his protectionist tactic on other countries, at least in the near-term. In addition to this article, we also get two PMI readings from Australia. While the CBA/Markit gauge ticked up to 51 from 50.9, the AIG index declined to 52.7 from 54.8 - May was the fifth month of the economic expansion either way. On top of that, the first quarter inventory data was also published and showed a 0.7% QoQ increase, well above the consensus calling for 0% QoQ. It means a positive contribution to GDP growth - the report will be released on Wednesday.

The AUDUSD is rebounding this morning after drawing the bullish pattern several days ago. The first target for bulls could be found nearby 0.7020. Source: xStation5

In the other news:

• Japanese CAPEX grew 6.1% YoY, well above the consensus of a 2.6% YoY increase; companies’ profits grew 10.3% YoY while sales increased 3% YoY

• Chinese Caixin PMI for manufacturing remained at 50.2 in May, the consensus had pointed to 50