Xi Risk Rally May Not Last Long
Talking Points: Market Risk
- Chinese President Xi Jinping seems to be de-escalating trade tensions between China and the US.
- That has lifted the prices of “risk assets” but the gains could well be temporary.
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Risk Assets in Demand
A pledge by Chinese President Xi Jinping to lower import tariffs on products such as autos has prompted traders to take on more risk, benefiting assets like stocks and the Australian Dollar to the detriment of safe havens such as the Japanese Yen.
Speaking at the Boao forum in Hainan, Xi’s comments were seen as de-escalating China’s trade dispute with the US. He also promised to improve market access for foreign investors but whether his words will calm the rhetoric from US President Donald Trump remains to be seen and the “risk rally” may not be sustained for long.
In the meantime, the Australian Dollar – often seen as a proxy for China – has gained considerable ground against the Yen despite concerns that Xi’s words have been heard before and need to be followed by actions.
AUDJPY Price Chart, Five-Minute Timeframe (April 10, 2018)
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Three concerns in particular could prompt investors to reduce their market exposure and head back towards the havens: the growing battle between Trump and the FBI, which has raided the offices and home of his personal lawyer Michael Cohen, the US sanctions on Russia and the escalating dispute in Syria. Trump has promised quick and forceful action in response to a suspected chemical attack there.
Tensions in the Middle East have already lifted the price of US crude oil and further gains seem likely unless the US and Russia start working together in Syria.
US Crude Oil Price Chart, 15-Minute Timeframe (April 6 – 10, 2018)
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--- Written by Martin Essex, Analyst and Editor