It's time now for an in-depth look at the market action today.
And for that, I'm joined on the line by Dr. Hwang Sei-woon, research fellow at the Korea Capital Market Institute.
Dr. Hwang, thank you for coming on today as always.
Stocks were up in New York after the Trump administration decided to delay some of the new tariffs on China. The Dow up 1-and-a-half percent, and the Nasdaq about the same. What's the story there and in other markets?
In Wall Street, stocks soared on Tuesday after the U.S. decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, reigniting hopes Washington and Beijing could reach a long-term resolution.
Stocks were lower before the USTR announcement as the bond market raised red flags, fueling concerns the global economic slowdown could tip us into a recession. The widely watched 2-year to 10-year yield spread is now just 2 basis points. A yield-curve inversion has been a reliable recession indicator watched by the Federal Reserve as well as many market experts.
Asian stocks also climbed after the Trump administration de-escalated its trade war with China. Investors would have periods of relief like what we are seeing at the moment, but the relationship has changed so the markets will react in a volatile or choppy manner in the medium term. Stocks in Hong Kong and Korea gained 0.47% and 0.90% respectively, while Japan’s Nikkei rose 0.63%.
The protest in Hong Kong have been creating some anxiety among investors. China has troops at the ready to intervene if necessary. What effect does this have on the markets, and why?
Protests in Hong Kong that have persisted for the past two months could eventually deliver a more lasting blow to U.S. and global financial markets. Along with trade tensions between the U.S. and China, the confrontation in Hong Kong has rattled investor confidence.
Heightened tensions or a bloody clash could roil global markets because Hong Kong is seen as a financial hub and problems in the region could also stall any chance of a near-term Sino-American trade resolution. In addition, the Chinese media have already accused the U.S. of being behind the protests or at least encouraging them, tying the unrest in Hong Kong to the greater trade dispute with the U.S. Ultimately, a harsh response to protesters by China’s People’s Liberation Army, including loss of life, could make it unpalatable for the Trump administration to forge a grand trade deal. Tensions in Hong Kong will add risk to world economic growth if they lead to violent confrontation.
Now, with Korea getting ready to exclude Japan from its own whitelist of trusted trade partners, the question is what kinds of products these tougher export controls will affect -- what industries. And what effect do you think this will have on trade and other areas?
South Korea's trade ministry on Wednesday started the process to drop Japan from its list of trusted trading partners, in a tit-for-tat move amid the growing trade row between the two Asian neighbors.
Seoul’s white-list decision will increase uncertainties in South Korea-Japan economic relationship. However, the impact from the decision is not likely to be sizable. South Korea will need to have symbolic tot-for-tat response measures. However, one of the best responses against Abe administration could be to export more to Japan even with the Japanese export restriction. Therefore, Seoul is likely to announce the policies aggressively but implement the policies flexibly. When we consider the fact that exports account for 35 percent of Korea's GDP and 14 to 15 percent in the case of Japan, it would be better for Seoul to avoid putting too much pressure on export industries by maintaining flexibility in implementation.
Alright, Dr. Hwang. Very interesting.
We'll have to leave it there, though.
Thank you for coming on and sharing your insights.