ASX 200 shudders as China-Australia relations deteriorate even further

Trade in Asian markets has returned to normal today and that’s come with a big uplift in market activity. Price in action in the region’s indices has been mixed overall, with a lack of a clear and overarching narrative meaning the benchmark stock indices have traded according to their own domestic or technical factors.

AUD/JPY stocks have surged higher, in large part reflecting the weakening Yen during the period of the country’s public holidays, but the Chinese stock market has taken a spill, though remains well entrenched in its recent and quite stubborn trading range.

ASX 200 trades weak

The Australia 200 has traded weaker from the get-go, after US stocks late swoon seemed to spill into Australia’s stock market. It’s been a broad-based decline, with the index taking a 0.7% spill at time of writing, led by a swoon in Aussie tech stocks, after a similar bout of weakness in the tech names on Wall Street last night.

Local shares, along with the Australian Dollar, shuddered today as headlines hit the newswires about another deterioration in Australia-China relations. Coinciding conspicuously – as pointed out on Twitter by IG’s friend and Ausbiz producer Hans Lee – with speculation that the Australian government is intending to tear-up the Port Darwin lease, China’s National Development and Reform Commission announced it would be halting activities with Australia indefinitely, shutting down another avenue for dialogue between the two countries.

The AUD/USD took a spill right

The AUD/USD took a spill right to the 0.7700 mark following the news. Although probably not something that’s likely to impact Australian economic fundamentals in the near future, nor the profits of our big miners, with China still unlikely to go the “nuclear option” and slap tariffs on our major mineral exports, it is a sign that in the long-term, China is determined to decouple the two economies from one another, and probably reduce its reliance on Australian exports eventually.

On top of that, at the micro-level, the latest act of hostility from the Chinese is a sobering reminder to industries and companies target by Chinese tariffs that business conditions aren’t likely to improve any time soon.

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Looking to the session ahead

It's shaping as another positive open for European stocks – the marginally weaker Euro is probably helping there – but US stocks seem to be poised for another tech led dip at the open. The night’s news flow will be highlighted by the Bank of England (BoE) meeting tonight.

Although it’s almost certain not to change its policy settings, the all-important guidance will be the crucial point from the BoE tonight. As UK economic fundamentals improve, amidst the country’s world-leading vaccine roll-out, there’s growing speculation about when the BoE may begin to wind back its asset purchasing program. Any hint to such a move will give a shot in the arm to the GBP/USD, which is clinging onto the 1.39 handle currently, with the 1.40 mark the pair’s major resistance level in the bigger picture.

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