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Markets have been risk-on this week so far, despite tough words from the US President Donald Trump. On Friday, Trump said that Washington will potentially take steps to revoke Hong Kong’s special status and possibly levy sanctions and other economic weapons against China.

Subsequent to the conference there was news, first reported by Bloomberg, that the Chinese government appeared to be reneging on the phase 1 deal. China was reportedly telling state-owned agricultural firms to halt purchases of one of the major US agricultural exports to China and a pillar of the deal’s promised $200 billion in extra exports. However, it has transpired that some transactions are still going through even after officials in Beijing ordered a pause in some purchases, Bloomberg now reports. 

“Shippers sold as many as four cargoes of US soybeans from the new crop said the people, who asked not to be named because the information is private. State-run stockpiler Sinograin was bidding earlier for Pacific Northwest cargoes, the people said,” according to Bloomberg News.

State-run buyers purchased more than 20 cargoes, or over 1 million metric tons, of American soybeans in about two weeks in May. In April, China had imported a record 86,507 tons of U.S. pork, up almost 600% from a month earlier, customs data show.

However, the same article reiterates that the “Chinese government officials have told major state-run agricultural companies to halt imports of some American farm goods including soybeans, people familiar told Bloomberg News on Monday. US cotton and corn imports by state buyers have also been paused, a person said.”

There are some exceptions to the order that state-run buyers Cofco and Sinograin halt American soy purchases, one of the people said. One exception is when state-buyers import on behalf of private firms, who are not affected by the halt, the person said. Another is when the state-buyers need the beans to cover their derivative positions, and a third exception is if there are already ongoing transactions, the person said.

Market implications

The market has shrugged-off such risk as there is nothing concrete and there appears to be more bark than bite coming from both sides of this war of words. 

However, should some form of a real trade confrontation take place at a time when US economic policy toward China is dictated less by long-term national interest and more by short-term electoral calculations, it would be sure to impact markets negatively.  

For the meantime, however, the AUD is basking in the risk-on mood and has rallied firmly to break above a key trendline:

  • AUD/USD rips to break major trendline resistance, it could be blue skies on Fed/RBA divergence