(Bloomberg) — Asian shares climbed and US futures advanced as markets turned risk-on after President Donald Trump delayed tariffs on Mexico and Canada for a month and said he’d hold further talks with China.
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Stocks across Asia-Pacific rebounded after the S&P 500 trimmed most of its slide on Monday. 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 will fail to avert tariffs being levied with traders bidding up the dollar against its Group-of-10 peers.
The tariff delays helped reverse Monday’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 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.”
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 12:01 a.m. Tuesday 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.”
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 materializes. That concern was evident in the bond market, where short-dated Treasury yields climbed as longer ones moved in the opposite direction.
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