Chinese stocks surge as Trump delays increase in tariffs

Summary:

• Shanghai Composite surges more than 5% after Donald Trump officially extended a deadline to raise tariffs on China's goods

• A final vote on Brexit postponed by May, Brexit could be delayed until 2021 according to a The Guardian’s article

• US dollar trades slightly lower, Antipodean currencies on the rise as risk sentiment improves

Deadline extension

Donald Trump officially extended a deadline to impose a higher tariff rate on Chinese goods signalling that substantial progress had been made during the latest round of talks. It means that China will not experience a tariff rate increase to 25% from 10% on its $200 billion goods exported to the US. Donald Trump wrote on his Twitter account that substantial progress made concerned “important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues.” As a result of these productive negotiations Donald Trump said that a summit between him and Chinese President Xi Jinping was planned to take place at Mar-a-Lago in order to conclude an agreement. The meeting is likely to be held during either the third or the fourth week of March. It suggests that any higher duties on China are unlikely to be imposed at least until that date. However, the meeting between the two leaders is contingent on further progress in negotiations. He also did not offer any details how long he expects the tariff extension to last. It is important to add that “the latest round of negotiations produced an agreement on a currency provision”, according to US Treasury Secretary Mnuchin. Financial markets seem to be thinking “so far, so good” and as a result the Shanghai Composite is surging 5.3% at the time of preparing this morning’s commentary. The Hang Seng (CHNComp) is also cheering the remarks we were offered from US President Donald Trump and rising 1.8%. On the currency front we have outperformance of the Antipodean currencies such as AUD and NZD - both are 0.3% up against the US dollar.

The Hang Seng is pushing higher following the increase from late last week. The index is eyeing 11800 points as its first notable resistance on the horizon. Source: xStation5

Brexit postponement

Meanwhile UK Prime Minister Theresa May decided to once again postpone a final vote (so-called meaningful vote) on her Brexit divorce agreement, setting a new deadline on March 12. Until then she is to keep negotiating with the EU and the UK Parliament. In turn, according to a The Guardian’s article, citing most senior officials from the EU, Brexit could be delayed until 2021. Brussels is reportedly unwilling to offer a short extension only to have to revisit the issue in the summer when the UK government is likely to again fail to win a Brexit agreement. Therefore, the UK staying in the block until 2021 now seems to be the most likely scenario. Note that the 21-month transition period with additional time as a member state would practically make the contentious Irish backstop redundant. This could be a possible way to finally deliver Brexit (or cancel it altogether for example in two years). The current deadline for the UK to leave the European Union is March 29. The British pound barely responded to these revelations and it is trading 0.15% higher this morning.

The GBPUSD managed to hold above its important short-term support placed at around 1.2990. Source: xStation5

In the other news:

• New Zealand’s retail sales grew 1.7% QoQ in the final three months of 2018 compared to a 0.5% QoQ increase expected