On May 5, local time, US President Trump announced on Twitter yesterday that tariffs on Chinese goods with an additional total value of 200 billion US dollars (about HK$135 trillion) would be raised from 10% to 25% starting on Friday, citing the slow pace of Sino-US trade negotiations.
On May 6, China's stock market fell sharply after the opening of the Asian session, the Shanghai Stock Exchange Index fell below 3000 points and industrial futures gapping lower from the open. Since March 2018, Sino-US trade relations negotiations have become one of the hot issues in the market. The two major adjustments in March and October 2018 are related to this. After experiencing bloody battle, the two sides retreated to the negotiating table.
Just during the Labor Day holiday, the Sino-US trade agreement is full of hope.
On May 3, Vice President Mike Pence said President Trump was still hopeful of reaching a trade agreement with China; on May 1, the White House said that the latest round of negotiations between China and the United States had taken the two sides a step further towards reaching an agreement; and White House spokesman Sarah Sanders said, "The negotiations are aimed at making substantive progress on important structural issues and rebalancing “Trade relations” of China and the United States.
In the process of market research, we often divide the factors affecting the market into deterministic factors and uncertain factors. Obviously, Sino-US trade negotiations belong to the latter and as a risk factors.
From January to April 2019, domestic commodities and stock markets continued the upward trend since December last year. One of the most important factors is macro-exceeding expectations, including positive progress in Sino-US trade negotiations. After the stock market disaster in 2015 and the commodity bull market which lasted for three years, the market in early 2019 is very pessimistic about the whole year's macro situation. Any risk factor may cause large fluctuations in the market. Although the economic data in the first quarter seem to falsify the pessimistic economic expectations, it is understandable how Sino-US trade frictions react as a major event in the capital market.
However, in macro-environment, the Fed's interest-rate-raising cycle is facing an end, the yield of US long-term and short-term treasury bonds is hanging upside down, and the US economy is on the strong side or facing an end; the global trade environment is deteriorating, and Korea's export indicators have entered a downward channel; the global PMI indicators have entered a contracting region in an all-round way; China's market economy environment is complex, and the sixth inventory cycle since 2000 has already After entering the active inventory period, after more than 40 months of positive growth, real estate also entered the downward channel in the first quarter of this year in the next few months or facing greater economic contraction pressure.
The relatively weak environment of commodity fundamentals makes it easier to form a strong response to sudden factors. Although the price of iron ore and crude oil has risen due to supply, which forms the cost support for commodities, if demand is determined to weaken, the decline may be the best way to vent.