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We have warned on our Facebook page earlier this week on 11/6/18 that the main risk to the financial markets would be the 15th of June, where by no one then had actually remember that it is the deadline for the US Administration to impose the final tariffs list against China and also state their implementation date.
There was of course upside risk given how Trump had mentioned that President Xi was a good "Friend" of his and all the help China have done to bring about the Kim-Trump Summit in Singapore. However this was not the case and clear warnings were on the wires as early as Friday morning.
This was followed by the official announcement by the Trump Administration at 8pm for the final 50B tariff import package.
This was followed by immediate China retaliation.
We think this is the nail in the coffin for all the US-China Trade Talks along side the peace agreement on the Korean Peninsula which obviously was China sponsored as we explain why below.
There were two meetings between China President Xi and North Korea President Kim leading up to the Panmunjom Declaration on 27/4/18 between Kim Jong En and South Korea Moon Jae-In in which the Panmunjom Declaration was deemed as a prelude to the Trump-Kim summit on 12/6/18 at Sentosa Island.
Source : Wikipedia
As the proverb goes, a picture is worth a thousand words. The plane that Kim Jong En took to Singapore was greatest give away to how much influence China had on the successful summits held in both Panmunjom and Sentosa Island.
Given that how Trump have likely not kept his promise on reduced pressure over China for Xi's help over North Korean issues that could boost his ratings and perhaps even allow a win for the Noble Prize, we are excited to see how China will retaliate on all fronts including for North Korea to return to their rouge ways to punish Trump by showing him who is the boss.
As much as we should always try to remain neutral, Trump still has key advantage over China in terms of Technological Trade War as shown in the ZTE case. As Trump have said, you can't lose more when you are already losing.
We have our popcorn ready for more action watching the China-US trade war drama which has finally started to really truly blow up as both parties start on real implementation to tariffs.
Rising Interest Rates causing Asian outflows
Since early may 2018, we have warned readers via our blog post as well as commentary on our Facebook page on how we have reached the threshold for rising US interest rates where by the next move would be outflows from EM and Asian financial markets.
We have then seen sudden quick outflows out of EM currencies such as the Turkish Lira, Argentina Peso and more recently the Brazilian Real and South African Rand.
Forward 6 weeks since we first warned of outflows from ASEAN economies, we are surprised to note the pace of outflows have exceeded our expectations especially for the STI which was the global best performer up until the start of May 2018, to saw the bounce gains of 10% since Feb18 completely erased while we now look at a possible break of the upper band 3300 - 3600 trading range.
A break of the 3300 levels open grounds for 3000, while we maintain our bearish call for Singapore Banks on slower China / Asian growth which was confirmed by the PBOC this week as the Chinese Central Bank shifted to a dovish stance by not raising repo rates by 5bps in a bid to signal their dovish intention to save the falling Chinese equity market and weak domestic market.
The People’s Bank of China unexpectedly left interest rates for open market operations unchanged on June 14th 2018, even after the Federal Reserve raised the target range for the federal funds rate for the second time this year. The rate for 7-day reverse repurchase agreements remained at 2.55 percent, the 14-day tenor at 2.70 percent and the 28-day tenor at 2.85 percent, the central bank said in a statement on its website. The benchmark lending rate was also held steady at 4.35 percent.
This is a good move by the PBOC to not relent to market forces in a bid to not force the overly leveraged domestic economy into a tail spin, but we likely to see some kind of outflows out of China and Asian Economies as funds continue their chase for yield.
A blow up to the Trade War between China and US will not help ASEAN case to control further outflows as we hold on to our bearish call on global equities giving rising interest rates to hurt corporates cost of funding and funds outflows to further aggravate the pain.
We now seek a case where by further outflows will now likely cause rating agencies to downgrade certain fix income ratings of Asian corporates which would add fuel to downside for equities.
Good luck trading!
The Bad Bear
Any content on this blog should not be relied upon as advice or construed as providing recommendations of any kind.