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Rising US/China tension dampens lockdown optimism

Rising US/China tension dampens lockdown optimism

Escalating tension between China and the US may see a more cautious trading session today. Industrial metals and crude oil prices fell at the end of the trading week as markets digested news that the China Peoples’ National Congress will formalise a National Security law for Hong Kong. The news pushed the Hang Seng index down by more than 5% on Friday. 

Reports from the US that the government may withdraw Hong Kong’s special trading status in response, turned up the heat. China’s foreign minister stated over the weekend that the US should give up its efforts to “change China”. The war of words, and reports of protests in Hong Kong over the weekend mean the performance of the Hang Seng index could influence all other markets today.

The daily fixing of the Chinese yuan is also in focus. Markets may interpret a weaker setting against the US dollar as a sign of worse to come. USD/CNY is currently trading around 7.13, less than 1% from it’s all-time high near 7.19. Currency markets opened quietly this morning, and the Australian dollar is under modest pressure on the back of weaker commodities.

Holidays in Singapore, the UK and US today and tonight could see lighter volumes change hands today. US share index futures are about 0.5% higher this morning, pointing to a positive start to trading. In the absence of major data investors may focus on US/China headlines, as well as anticipated lockdown easing and the search for a cure to the Covid-19 virus.

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