The arrest of Huawei founder's daughter is a bad sign for US-China relations
If you weren't already on the skeptical side of things with regards to the US-China trade truce, surely the Huawei headlines overnight will cause you to rethink otherwise. If it hasn't, here's why it should.
There's a reason why risk assets have turned sour following the news there and it's because this is quite a serious blow to US-China relations and more so for the trade truce that was struck over the weekend.
It is more to do with the symbolic nature of the arrest rather than the arrest itself in this case. As US and China are seeking to resolve matters via dialogue, especially on issues like IP theft and trade, the timing of this is rather poignant.
It's a major step back and China will not let this go easily. There's a growing sense of nationalism that is arising out of China these days, not helped of course by stuff like what Dolce & Gabbana did last month. And the fact that Dolce & Gabbana had to eventually apologise after the massive public uproar will only keep the fire burning when it comes to matters like this.
Yes, these are very much two separate issues but it doesn't take away from the fact that China will always put their interests first no matter what the situation is. And this will be no different to that.
If the US does decide to pursue a trial on this, you can believe that this will do more harm than it does help relations with China. And that is why markets are taking in the news rather poorly.
E-minis are down by 1.3% on the day and Asian equities are being battered with the Hang Seng index nearly 3% down now. Meanwhile, the yen remains bid while commodity currencies are bearing the brunt as Treasury yields are also falling further after a brief pause in trading yesterday.
