Once again, all the action appears to be in the US equity market rather than on the foreign exchanges. After its’ 400-point rally and sell-off into Monday’s close, the DJIA initially jumped 300 points in response to soothing Chinese words on trade (see below) and at one point extended these gains by a further 200 points. The US Dollar’s index against a basket of major currencies rose from 89.45 to 89.55 in early trading but then fell steadily during the day to 89.25 having at one point reached a near-one week low of 89.15.
Chinese President Xi Jinping gave a keynote speech at the Boao Forum – often referred to as the Chinese version of the Davos Forum, which is taking place on the tropical island of Hainan - where he addressed the trade situation. Xi called for an upholding of the multilateral trade system and said dialogue was the way to resolve disputes, diffusing trade tensions with the U.S. He vowed to open sectors of China’s economy from banking to auto manufacturing, increase imports and expand protection to intellectual property: "China does not seek trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account." He said countries should "stay committed to openness, connectivity and mutual benefits, build an open global economy, and reinforce cooperation within the G-20, APEC and other multilateral frameworks. We should promote trade and investment liberalization and facilitation, support the multilateral trading system… This way, we will make economic globalization, more open, inclusive, balanced and beneficial to all."
Speaking on Bloomberg television from Beijing, Federal Reserve Bank of Dallas President Robert Kaplan said trade issues between the U.S. and China won’t get resolved soon and warned of potential damage if the dispute is prolonged. “I really do think it is too early to judge how this is going to affect the economy. But I do think the rhetoric, if it goes on for long enough at this level, is having somewhat a chilling effect… I’m still hopeful when we look back a year or two from now you’ll see very little actually done in the way of tariffs that were implemented,” Kaplan said. “That would be my base case, and I think we are in the early innings of this.” Equity markets will hope very much that his judgment proves correct. The USD index opens in Asia this morning at 89.25.