U.S. President-elect Trump announced that he will impose trade taxes on Mexico and Canada, and raise tariffs on China. Traders are reassessing their positions, and the market may continue to be under pressure.
Market participants say that Asian currencies, such as the Korean won and Thai baht, are seen as indicators of sentiment and are likely to perform poorly. They say that the stock markets in Mexico and Canada will also fall, especially for companies with significant exports to the U.S.
Here are the views of Asian analysts and strategists:
Nomura Senior Rates Strategist Andrew Ticehurst in Sydney:
"The tariff comments have sparked concerns about global inflation, leading to worries about global growth and increased geopolitical uncertainty. The market's knee-jerk reaction is a stronger dollar, rising yields, and weakening stock markets.
Trump seems to have singled out Canada and Mexico as his targets for tariff increases, which is puzzling, especially considering the existing trade agreement (USMCA) among the three countries.
Our U.S. team notes that Trump may use emergency powers to push for tariffs on Canadian and Mexican goods, but we believe that if Trump continues to do so, he may face challenges in court.
Strong dollar
Commonwealth Bank of Australia Currency Strategist in Sydney Carol Kong:
"The market remains vigilant for more tariff headlines, and the uncertainty of U.S. trade policy will keep the market weighed down, so the Australian dollar and other currencies are expected to remain in a downward trend at least. Trump's threat of more tariffs will again boost the strength of the dollar. The Australian and New Zealand dollars will be dragged down."
Sydney ANZ Bank Head of Forex Research Mahjabeen Zaman:
"We may see the dollar remain strong temporarily, as the market digests this news in the short term. However, we cannot completely rule out seasonal factors affecting the dollar at year-end, which may slightly weaken its upward momentum. But the overall tendency remains bullish on the dollar, although I think the current price is already high."
Asian forex markets are expected to perform poorly
Societe Generale Macro Strategist in Hong Kong Kiyong Seong:
"We believe that even if the U.S. government gradually raises tariff rates and coverage, the market tends to preempt future tariff measures. We still think that emerging market currencies will be affected differently based on the various tariff levels."
Singapore Toronto-Dominion Bank Macro Strategist Alex Loo:
"The initial impact of Trump's statement is bullish for the dollar, reflecting the effects of global trade tensions and the taboo of related tariffs. Given the prospect of a disrupted status quo, we can expect Asian currencies to perform poorly, especially the Korean won, Taiwanese dollar, and Singapore dollar, as their economies are trade-oriented."
Singapore Barclays Asia Forex and Emerging Markets Macro Strategy Head Mitul Kotecha:
"Emerging markets and Asian currencies, especially trade-related currencies, were hit by U.S. President Trump's tariff comments this morning, and may experience a pullback in the short term. This will clearly increase pressure on the relevant currencies. Sensitive currencies like the Korean won, Taiwanese dollar, and Thai baht are particularly at risk."
Gama Asset Management SA Global Macro Portfolio Manager Rajeev de Mello:
"This indicates that tariffs will be the preferred means of implementing foreign policy. Given that the announcement came earlier than expected, I expect the related stock markets to come under further pressure. The president-elect doesn’t even need to wait until the inauguration to start fulfilling his campaign promises."
Hong Kong ING Bank Chief Economist for Greater China Lynn Song:
"The direct impact could negatively affect currencies and stocks in places like Mexico and Canada. Companies with significant exposure to the U.S. market will be disproportionately affected. The motivation for this round of tariffs is fentanyl imports, aiming to have Mexico help stop fentanyl imports. This indicates that there is still room for negotiation on tariffs, and in our view, the likelihood of imposing a 60% comprehensive tariff on China immediately is low."
NATIXIS Senior Economist GARY NG:
"This is undoubtedly a shock to the market, putting pressure on Chinese assets, especially export sectors, as these additional tariffs will squeeze corporate profits. However, compared to the measures he has implemented against Canada and Mexico, the scale is not significant, so investors may still want to see what further measures are taken and when/whether the promised 60% tariff measures will actually be realized."
Shanghai Pan Yao Asset Management Deputy General Manager SIMON YU:
"Tariffs are Trump's trump card in negotiations with other countries. Referring to Trump's 1.0, China already has a template for responding to tariffs. As for other coercive measures, such as technology-related sanctions, China may accelerate its self-reliance and import substitution processes."
Wellington BNZ Senior Market Strategist JASON WONG:
"It feels like we’re back in 2016, with the market starting to respond to tweets again. It will take some time; this is the new normal. You can rush to conclusions, but I won’t rush to conclusions now. The market needs to calm down. You can’t read too much into these things."
Singapore TD Securities Forex and Macro Strategist Alex Loo:
"Technically, the USMCA agreement won’t be renegotiated until 2026, but Trump likely intends to kick-start the renewal process with Canada and Mexico through the tariff measures announced today. While the Mexican peso and Canadian dollar have fallen in response, the lack of liquidity outside of North America may be one reason for the significant volatility in the Asian market this morning."
ITC Market Senior Forex Analyst SEAN CALLOW:
"Just last month, Trump said, 'The most beautiful word in the dictionary is tariff,' so his intentions shouldn’t really come as a surprise; it's just the timing of the statements that differs. The decline in trade-sensitive currencies makes sense, and given the calm on the schedule, it should continue in the short term, but once we approach the December FOMC meeting, Fed policy should become the focus again."
IG Market Analyst TONY SYCAMORE:
"I just want to align this with Bessen's appointment. People have been expecting him to project a gentler tone. Perhaps this is a reaction, as many believe Bessen will moderate some of the more extreme trade policies... but Trump will not be softened by anyone. He has mentioned imposing tariffs of up to 60% on Chinese goods... Therefore, if we are only talking about an additional 10% tariff on Chinese goods on top of existing tariffs, that is much less than what he previously indicated... so it may actually be lower than the worst-case scenario we have seen."
Brisbane CITY INDEX Senior Market Analyst MATT SIMPSON:
"After nominating Bessen as finance minister, Trump almost wants to remind the market who is in control. However, with the Canadian dollar appreciating against the Mexican peso, the market believes this will hit Mexico the hardest."
Article reposted from: Jin Shi Data