How Trump's tariffs and China's fiscal policy are shaping Asian markets

Overview

Following an onslaught of US elections, central banks’ monetary decisions (the Federal Reserve (Fed), the Reserve Bank of Australia (RBA), the Bank of England (BoE)) and China’s NPC meeting last week, Asian markets are kicking off the new week on the backfoot, with uncertainties over Trump’s tariffs plans putting a cap on risk appetite for the export-driven region.

Questions now revolve around how aggressive Trump’s “America First” agenda is going to get, whether he will follow through with his 20% blanket tariffs on all imports and 60% tariffs on China, which has been a key part of his campaign’s promises. Either way, the region may have to brace for any direct trade pressures on their economy and any knock-on effects from US tariffs on China. If history is of any guide, the initial onset of the 2018 trade war saw a more than 20% decline in the MSCI Asia Pacific Index.

China’s fiscal plans disappoint... what’s next?

Into the new week, we are seeing a follow-through of downside reaction in Chinese equities, with the Hang Seng Index (HSI) heading 2.4% lower in today’s session. The lack of clarity over Trump’s next move, coupled with disappointment over China’s fiscal plans, suggest that economic risks for China remain prevalent. Lower-than-expected inflation data released over the weekend reinforced its weak domestic demand, while its $1.4 trillion local debt package to ease local government financing strains may suggest little net injection into the economy for now.

We may expect Chinese authorities to take on a more reactive fiscal stance ahead, with further support to come as a mitigation for any upcoming US economic pressures. The broader focus now may be more of stabilising the economy, rather than a strong economic revival which may then invite more retaliatory measures from the US in capping its growth. Any upcoming stimulus measures may likely be measured, with the sole objectives to meet its 5% gross domestic product (GDP) growth target.

With that, we may expect further consolidation to a drift lower into year-end. A reactive stance to US’ action suggests that things could get worse before it gets better. Trump’s approach as seen in 2018 may be to go hard on China at the onset, before trying to negotiate to a middle ground.

Hang Seng: near-term lower consolidation range at risk

A whipsaw in the HSI towards the end of the last week saw the near-term lower consolidation range at the 20,300 level being tested. For now, its daily relative strength index (RSI) continues to hover around its mid-line amid the lack of a concrete bullish catalyst. Ahead, any breakdown of the key psychological 20,000 level could signal stronger selling pressures, which may pave the way towards the 19,500 level next.

Hang Seng daily chart

Nikkei 225: ascending wedge formation in place

For the Nikkei 225 index, an ascending wedge formation seems to be in place, with the greater sensitivity of its moves to Wall Street suggesting that its performance may potentially hold up better than its regional peers. For now, its daily moving average convergence/divergence (MACD) is attempting to defend its zero-line. Trading within the wedge formation may leave the lower trendline at the 38,153 level on watch for any higher-low formation to reinforce the upward trend.

Nikkei 225 daily chart

Singapore Blue Chip: is the November 2021 high next?

The Singapore Blue Chip Index has a good run lately, supported by strength in its banking sector on a potentially less-dovish Fed, along with Q3 2024 earnings resilience. Any validation that Trump’s inflationary policies may materialise could remain a pushback against dovish rate expectations, which will be beneficial for banks amid the prevailing soft-landing environment. The recent higher highs and higher lows reinforce an upward trend, which may place its November 2021 high at the 377.00 level on watch next. For now, a consolidation following last week’s 5% surge may suggest buyers holding up, which bodes well for further trend continuation.

Singapore Blue Chip daily chart