HONG KONG, June 23 — Asian stocks rallied today after an early plunge as Donald Trump countered one of his top economics advisors who said the China-US trade deal was “over”, fanning fears of a renewed tariffs standoff between the superpowers.
Peter Navarro’s remarks sent shivers through markets, which had started on the front foot as investors cheered the continued reopening of economies despite signs of a second wave of infections in several countries.
Appearing on Fox News, Navarro hit out at China’s handling of the coronavirus outbreak and when asked whether the much-vaunted pact signed in January was over he replied: “It’s over. Yes.”
Markets across Asia immediately fell into negative territory. But soon after, Trump tweeted: “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!”
Navarro also said his comments had been taken out of context.
Equities then rallied and by the end of the day Hong Kong was up more than one per cent, Tokyo added 0.5 per cent, while Sydney and Shanghai put on 0.2 per cent.
Seoul jumped 0.2 per cent despite signs of a second wave of coronavirus in South Korea, while Mumbai rose 0.7 per cent and Singapore edged up 0.1 per cent. Taipei and Bangkok were also up.
Manila, Jakarta and Wellington were in the red.
In early trade, London was up 0.9 per cent whie Paris and Frankfurt jumped more than one per cent.
“Navarro’s fluffed interview answer served as a useful beta test for how relevant the US-China trade deal still is for markets, even among all the concerns over the coronavirus,” said Jasper Lawler at London Capital Group.
“The markets have continued to sing an optimistic tune despite souring relations between the US and China. This wobble... demonstrates that optimism rests on the idea that souring relations won’t threaten the phase one deal.”
Lockdown optimism
The easing of lockdown measures combined with trillions of dollars in government and central bank support remain the key drivers of the seemingly unstoppable march higher for equities.
And a pick-up in new cases in all continents is still unable to knock traders off their stride, as they bet on a V-shaped economic recovery.
“When you have high levels of liquidity, when you have a recovering economy, low inflation, low interest rates, you really have a strong foundation for equities to move higher,” Victoria Fernandez at Crossmark Global Investments, told Bloomberg TV.
“But there are so many uncertainties still out there that we think there’s going to be some volatility before we get that upside trend on a continual basis.”
The gains follow another record for the Nasdaq on Wall Street and came as Europe pushed ahead with the relaxation of containment measures, while New York City — at one point the centre of the US outbreak — allowed workers to head back to work.
“So far, infection spikes have been localised, but concerns should continue to grow about a second wave,” said AxiCorp’s Stephen Innes.
“However, with renewed widespread lockdowns the most unlikely course of action, the markets seem to be just shrugging off these concerns as the lockdown-easing narrative persists.”
Oil prices, which had fallen around two per cent on Navarro’s remarks, were up in the afternoon with support coming from demand hopes and massive output cuts by major producers.
“Trump would be very reluctant to officially walk away from the deal in an election year, given the potential impact it would have on markets,” Warren Patterson, at ING Bank NV, said. “Attention in the oil market will turn back quickly to efforts from Opec+ to re-balance the market.” — AFP
