Market Awaits for Possible Debilitating Retaliation from China

NEW YORK, N.Y. – The stock market continues to wait from the possible retaliatory action from China following the signing of the US President Donald Trump of the Hong Kong bill that backs the pro-democracy protesters in the China-governed city.

Earlier in the week, the market was boosted by the comments from both the US and China, stating that trade negotiators from both countries are near reaching to an agreement for the initial phase of the negotiations to end the trade war. However, the sentiments were stamped later in the week after President Trump signed the law that backs Hong Kong autonomy, which has already caused a misunderstanding between Washington and Beijing previously.

Now, the market is on the edge of its seat for how China would react to further the concerns of investors over the long-standing trade war that has been going on for months, dragging the global growth and stock market down. Plus, the impending new round of tariffs set to take effect on December 15 has also made the sentiments in the market muddy.

After the increasing uncertainty on trade has supported the greenback, the dollar was recently seen trading higher. And with the signing of the Hong Kong bill, the optimism that phase one of the US-China trade deal will be finalized before the year ends might start to be waning.

Ahead of the December 15 deadline for a new set of tariffs Washington is expected to impose on Chinese goods, retaliation of the Chinese government is still a subject of speculation. Although the strong economic indicators might still be able to hold the interest rate of the benchmark unchanged and keep the Fed on the sidelines before 2020 comes.

A breakthrough on the trade deal, however, would boost the risk appetite and possibly weaken the dollar.

In the Chinese market, on the other hand, the trade negotiations have remained a big deal in the market with comments from both sides saying that the trade agreement is nearing a close. President Trump signing the Democracy Bill for Hong Kong has upset China, and the latest statement from an official in the country has already suggested a that there will be a retaliatory action, although there isn’t any hint as to what China will do.

If China’s retaliation would involve derailing the progress of phase one of the trade agreement, there is a possibility of a massive risk-off reaction in the market, affecting the Wall Street, shares in China, and the USD?CNH pair, along with other trade-sensitive currencies all over the world.