The mood soured a bit across global equities on Wednesday following two days’ worth of mixed messages from Donald Trump on trade.
“It’s me right now that’s holding up the deal”, Trump told reporters Tuesday. He went on to suggest he’s willing to walk away from talks altogether if the Chinese side doesn’t go back to supporting the original draft deal. On Monday, Trump assailed China during a CNBC interview for currency manipulation.
Shares in Hong Kong snapped a four-day win streak, sliding nearly 2% as protests worsened. Local authorities described the situation on the ground as “riot like”. In a nightmare scenario, the city’s decision to permit extradition to the mainland has the potential to jeopardize Hong Kong’s unfettered access to global export and financial markets.
While it’s probably too early for anyone to lose their cool completely, it’s worth noting that Nancy Pelosi isn’t pleased with this situation.
“Congress has no choice but to reassess whether Hong Kong is ‘sufficiently autonomous’ under the ‘one country, two systems’ framework”, Pelosi chided, late Tuesday. House Democrats, she said, stand with the president and Senate Majority Leader Mitch McConnell in denouncing “this dangerous extradition legislation [which] imperils the strong US-Hong Kong relationship that has flourished for two decades.”
In the bottom pane there is the Turkish lira, which jumped after CBT kept rates on hold. Many feared the central bank would cut amid local stability in the currency and as speculation mounts for Fed easing. Today’s decision to stand pat should be welcomed by markets given that CBT could have conjured an excuse to ease had they wanted to. Still, they dropped the tightening pledge, and, as you can see, the lira quickly pared gains. The Istanbul re-run vote looms and tensions between Ankara and Washington over the S-400 dispute are likely to linger for quite a while.
Getting back to Hong Kong, the protests are jeopardizing a nascent bounce after the gauge tumbled more than 9% in May. That was the second-worst monthly loss since January of 2016.
Insult is added to injury when you take a look at interbank rates, which have skyrocketed to the highest in a decade on quarter-end cash grabs.
That’s likely to hurt stocks until it abates, and you’d be forgiven for suggesting that it’s not all attributable to seasonal effects. That liquidity squeeze has precipitated a sharply stronger HKD.
“Traders preferred vehicle for shorting the HKD is now at its most expensive since February 2017″, Bloomberg’s Mark Cranfield wrote Wednesday. “If spot USD/HKD were to swing back to the pricing of that period then it would slide toward a 7.76 handle.”
The situation in the city is the very definition of “fluid” and it certainly does not help that this comes at a time when trade uncertainty between the US and China is running high and speculation about Beijing letting the yuan breach a 7-handle is rampant (Tuesday’s warning shot at bears notwithstanding).
All in all, this is just one more aggravating factor with the potential to make an already fraught geopolitical backdrop even more tumultuous.