Sentiment turned sour on Wednesday morning as the US House passed a bill on Hong Kong that would require an annual review of whether the city is sufficiently autonomous to justify its special trading status under US law.

This move is controversial as China may see it as a challenge to its sovereignty as well as an interference in its internal affairs, and take retaliation measures. This came right after Beijing’s request to lower tariffs before it can commit to a $50 billion purchase of US agricultural products. Trade tensions are set to re-escalate 72 hours after markets celebrated the interim progress on the trade talks held in Washington last week.

Some key markets to keep an eye on today:

  • USD/CNH. The best indicator of US-China trade talk and market sentiment. An upswing of USD/CNH is viewed as a negative signal as offshore renminbi depreciates against the US dollar when trade talks turn sour. This morning, USD/CNH spiked up more than 100 pips to 7.091 area, suggesting tensions are escalating on the trade front.
  • Gold. The yellow metal carries safe-haven characteristics, which make it more popular in the event of rising uncertainty. This morning, the gold price jumped over $3 to $1.484 and it could see more upside if China postpones a trade deal or implements retaliation measures.
  • Hang Seng Index. Hong Kong is the key market to watch today as it seems to have become a key battlefield in the US-China relationship. Singapore-listed HK companies, namely HongKong Land, Jardine Matheson and Jardine C&C traded lower at the open. This suggests the Hang Seng Index could suffer from some profit-taking activities today. Technically, immediate support and resistance level can be found at 16,480 and 26,700 respectively.

USD/CNH chart

 

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