Summary:

• Asian equities bounce back led by Chinese indices following a bleak session on Wednesday
• PBoC devalues the onshore yuan substantially in a possible response to US threats
• Fitch warns that simmering uncertainty regarding NAFTA lifts trade risks for some US states

Wednesday was a really gloomy day for equity markets all around the world as investors were digesting the news that fresh tariffs on China were already in the pipeline. As as result European stocks shed a lot of their gains, and Wall Street followed with the Dow Jones (US30) declining almost 0.9%. However, a slight reversal came overnight and Asian indices are expected to end Thursday’s session well above their yesterday’s close levels even as no particularly relevant informations with regard to trade tensions have been released. Nevertheless, one may mention according to unnamed source the White House was reportedly have had ’high level talks’ with China where trade-related topics were brought up. Sources added that China must address long-standing US concerns (e.g. stealing of US intellectual property). Either way, even as such talks took place the outcome has not been encouraging, so today’s bounce across higher-beta assets might appear to be only temporary until new tariff headlines hit the wires.

The USDCNY has reached its highest point since August 2017. Source: Bloomberg

Anyway, several hours after the Donald Trump administration had announced that it planned to slap China with another package of duties, China responded that appropriate countermeasures would be undertaken. Meanwhile, an indirect step might have been already made taking into consideration what happened with the onshore yuan against the US dollar overnight. The PBoC chose to substantially devalue its currency against the dollar setting the reference point at 6.6726 compared to 6.6234 on Wednesday. This move might be perceived as an attempt to react to the US latest threats as the weaker yuan acts similarly to new levies making imports of US goods to China more expensive. Anyway, so far so good, these are words every single equity investors wants to have in your head setting aside further possible trade war escalations which, in our eyes, seem to be unavoidable.

The Hang Seng (CHNComp) managed to bounce off its local support placed in the neighbourhood of 10440 points once again. However, bulls may face a major obstacle relatively soon – 10900 points. Having this in mind, and assuming that a further trade war escalation appears to be only a matter of time one can suspect that the ongoing rebound is not being built on a solid foundation. Source: xStation5

The last topic being worth looking at this morning is a Fitch’s take regarding NAFTA talks. According to the rating agency ongoing NAFTA uncertainties raise trade risks for some US states which have the most to lose from a NAFTA termination. That said, the Fitch’s base case still assumes that a favourable deal will be ultimately struck, and therefore a material disruption of trade in the block should be avoidable.