Stocks across Asia-Pacific rebounded after the S&P 500 trimmed most of its slide yesterday.
The optimism was reflected in gains in Chinese stocks listed in Hong Kong, which jumped almost 4%.
Currency markets though were more concerned that US-China talks would fail to avert tariffs being levied with traders bidding up the dollar against its Group-of-10 peers.
The tariff delays helped reverse yesterday’s risk-off market sentiment with investors turning their focus on how a planned call between the US and China pans out.
The deferment with Mexico and Canada bolsters the view that Trump sees tariffs as a negotiating ploy – but is still reluctant to inflict economic pain on Americans.
The positioning in the Chinese equity market and a lot of other Asian markets is “a lot lighter today compared to 2018 when we first had the US-China trade escalation,” said Kelvin Tay, a regional CIO at UBS Global Wealth Management, in a Bloomberg TV interview.
“I think this time around the markets are likely to be to be a little bit orderly and not as chaotic as before,” Tay said.
Trump said that his administration plans to speak with China, raising the possibility of a potential reprieve on a 10% levy.
China will be subject to 10% tariffs if no deal is reached by 12.01am today, New York time.
“China now heads to the negotiating table with Trump, and with Mexico and Canada successfully delaying tariffs, hopes are high that China can do the same as well,” wrote Jun Rong Yeap, strategist at IG Asia Pte in a note.
“But if China can pull it off, risk sentiments may find further recovery momentum, at least in the near term,” Jun said.
Trump’s move to invoke an emergency and impose tariffs on the two nations and China is the most extensive act of protectionism taken by a US president in almost a century.
“Chinese tariffs seem much more likely to be implemented due to economic security, national security, and Cold War Two concerns,” wrote Jason Schenker president of Prestige Economics in a note.
Among the biggest uncertainties is how a resilient US economy would handle the impact of a trade war, in case it materialises.
That concern was evident in the bond market, where two-year Treasury yields climbed as longer ones moved in the opposite direction.
“While we believe that tariffs are primarily a negotiating tool for President Trump, it’s very difficult to say whether these tariffs will be short-lived or if there is a scenario where a deal is struck that reduces the tariffs,” said Yung-Yu Ma at BMO Wealth Management.
Federal Reserve Bank (Fed) of Chicago president Austan Goolsbee said the central bank should proceed more cautiously in lowering borrowing costs amid mounting uncertainty introduced by the Trump administration.
Others such as the Fed’s Raphael Bostic, Mary Daly, and Philip Jefferson are set to speak later today.
In other markets today, the dollar strengthened against every Group-of-10 peer.
West Texas Intermediate oil fell early in today’s session after its biggest advance in more than two weeks.
Gold held on to gains. Four of the five major cryptocurrencies rose yesterday after some concerns over Trump’s moves subsided.