US President Donald Trump tweeted that trade deal negotiations are going “too slowly” and has increased pressure on China to finalize a trade deal this week, by threatening to more than double tariffs on Chinese goods from the current 10% to 25%.

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Trump Ramps Up Pressure on China

Trump pressured China to finalize a trade deal during talks in Washington coming up this week, by threatening to more than double tariffs on USD200bil worth of Chinese goods from 10% to 25%, and to impose a fresh round of import taxes on top of that, according to an article on Bloomberg (6 May).

This statement casted a cloud over this week’s talks that were expected to finalize a trade deal. Strategist Greg McKenna, a strategist at McKenna Macro, wrote to clients stating that, “What China’s response will be, whether it cancels -- or sends -- the delegation that was heading to Washington this week is going to be critical to the markets’ reaction.”

S&P 500 index futures plunged; Asian markets set for shaky start

The S&P 500 index futures were down 1.6% and the yuan fell 0.8%, the highest since August. Last Friday, the S&P 500 Index was up 1.0% to 2,945.6 points. However, this latest update eliminated the positive sentiment created by a strong US jobs report that helped send US stocks higher last Friday.

The shock statement by Trump, following weeks of reports of progress in talks between the world’s two largest economies, is set to roil Asian markets today. Last Friday, prior to this piece of news, the Hang Seng Index (HSI) was up 0.5% to 30,081.6 points and the iShares China A50 Index ETF (2823 HK; China A50 ETF) was up 0.3% to HKD15.18.

Source: Macquarie Research - 6 May 2019