The Speaker of the United States House of Representatives, Nancy Pelosi chose Taiwan as the destination of his Asia trip. A decision that has raised suspicions from China, which claims sovereignty over this Pacific island despite US efforts to prevent the island government from losing its autonomy.
That Relations between China and the United States are among the worst moments of the last 25 years. However, this diplomatic confrontation has not yet reflected the worst-case scenario.
Global stock markets held their breath on Tuesday at the prospect of a new source of tension opening up another source of tension in world stock markets and adding to uncertainty. “Pelosi’s visit only adds another element of risk for investors‘ they explained from OCBC Research.
However, western stocks have been cautious so far despite the impact of the crisis nancy pelosi landing in Taipei. The European stock market closed last Tuesday’s session with mixed signs Ibex 35 is the only one among his peers who advanced on Tuesday. While the selective Spaniards were up 0.15%, the old continent’s main benchmark, the EuroStoxx 50, lost 0.6%.
Nor did selling sharpen on Wall Street, which changed sign as events unfolded in Taiwan. At the end of the market the The S&P 500 is down more than 0.6%, while the Nasdaq 100 is down 0.3%.. These market moves would not correspond to a bearish scenario when compared to Asian indices.
However, the response that the Beijing government can provide to Pelosi’s presence in Taiwan beyond military maneuvers is still unknown. Matt Maley, Miller Tabak’s chief strategy officer, believes that “when China overreacts with an extremely bellicose response, the stock market and others Markets will react more stronglybut right now most investors are looking at earnings, inflation and how inflation will affect the Federal Reserve over the next nine months.” Bloomberg. Goldman Sachs is also assuming that the good half-year results on Wall Street will lead the stock market for the time being.
Punishment on the Asian Stock Exchange
Rising geopolitical tensions between the United States and China caused Chinese stock markets to post their worst session in three weeks on Tuesday. Indeed, Hong Kong’s Hang Seng closed Tuesday morning’s session at its lowest level in more than two months – since mid-May – and the CSI 300, which acts as a benchmark in Shenzhen, is already accumulating a drop of more than 8% since early July. “Pelosi’s trip to Taiwan dumps risky assets,” they point out from Monex Europe, while stressing that geopolitical tensions are heating up around the world.
“The conflict adds to the current geopolitical uncertainty already caused by the war in Ukraine,” they point out from ActivTrades, arguing about the impact of the US political trip on the markets. The recent slumps in Chinese stock markets advocate that the country’s stock market should record annual losses of more than 15% in 2022 and is positioned as one of the worst so far this year. The losses were not only limited on the Chinese stock market. The main indices of the Asian continent also fell more than 1% before they even knew that Pelosi would land in Taipei without a fight. Japan’s Nikkei fell 1.4%, while Taiwan’s main index extended losses to 1.5% on Tuesday.
Sale of government bonds
Fixed income turned early hours buys into sells. The 10-year US bond touched a yield of 2.52% on Aug. 1. A number not seen since April. However, all of this has evaporated with tensions in relations between Beijing and Washington.
The forced purchases in the bond market have turned into strong selling, with the investor demanding higher profitability. That 10-year US bonds returned 2.7% at the end of the European markets. While the same climate prevailed in the European market. The German bond offered a yield of 0.81%, the Spanish 1.94% and the Italian bond, also penalized by the political situation in the country, again marks a yield of 3.05%.
The dollar is loosening
The foreign exchange market has also experienced a significant trend reversal after the events in Taipei. The dollar lost ground against the Chinese yuan, a 0.45% until it is assumed that for every dollar given, 6.75 yuan was given. In doing so, volatility at the two currencies’ crosses this Tuesday rose to the highest since November 2020, according to Bloomberg a brief dip of more than 0.5% during the New York session.
Taiwan’s currency hedging also reflected geopolitical tensions, rising 1.6 percentage points, the highest since mid-May. On the other hand, the “greenback” returned to take positions against the European currency. The euro depreciates again change in the 1,019 dollars. In this way, so far in 2022, the euro has depreciated by more than 10% against the dollar.