Japan Set for Golden Week Hangover as Trade War Hits Markets

(Bloomberg) -- Stock traders in Japan are set for a difficult return to work after the longest market holiday since World War II.

Japanese markets reopen Tuesday after an extended “Golden Week” holiday period, which included the May 1 ascension of Emperor Naruhito to the Chrysanthemum Throne. The Topix index of the nation’s equities, which hasn’t traded since April 26, is poised for a delayed reaction to Monday’s market turmoil and confirmation from President Donald Trump’s top trade negotiator that the U.S. plans to raise tariffs on Chinese goods on Friday.

Trump had announced on Twitter Sunday that the U.S. would more than double tariffs on $200 billion of Chinese imports, and may slap a new 25 percent duty on another $325 billion. That sent global stocks tumbling, with the CSI 300 gauge of large-cap shares traded in Shanghai and Shenzhen sliding 5.8 percent. The yen strengthened. While U.S. stocks pared early losses Monday, the comments from U.S. Trade Representative Robert Lighthizer sent futures lower after the market closed.

“This will certainly put some heavy pressure on Asian stock markets,” said Nick Twidale, chief operating officer of Rakuten Securities Australia Pty in Sydney of the Trump comments. “If this results in an escalation of tensions between the two trading partners then it can only lead to further downside for Asian stocks.”

Japan Set for Golden Week Hangover as Trade War Hits Markets

China’s yuan plunged more than 1 percent against the dollar Monday, the most in more than three years. The S&P 500 Index tumbled as much as 1.6 percent before closing 0.45 percent lower. Haven assets such as U.S. Treasury futures climbed, while the Australian dollar and crude fell, as volatility returned to markets.

Lighthizer told reporters Monday in Washington the U.S. plans to raise tariffs on Chinese goods on Friday, accusing Beijing of backpedaling on commitments it made during negotiations. Still, the trade talks will continue and a Chinese delegation will visit Washington on Thursday and Friday, he said.

After Trump’s comments, the focus shifted to how China would respond. While a Ministry of Foreign Affairs spokesman said Monday that a Chinese delegation was still preparing to travel to the U.S. for trade talks, he didn’t answer a question about the date or whether the group would be led by Vice Premier Liu He.

Here’s a look at some other events that happened while the Japanese market was closed:

Economic Data

  • U.S. payrolls climbed by 263,000 in April, exceeding all estimates in a Bloomberg survey. The jobless rate unexpectedly fell to 3.6 percent, while average hourly earnings growth was unchanged at 3.2 percent, below projections
  • China’s April manufacturing purchasing managers index slipped to 50.1, falling short of estimates
  • South Korean exports fell for a fifth straight month in April, albeit less than expected
  • Coming this week: China trade data for April on May 8, followed by inflation May 9. Japan’s Nikkei manufacturing PMI on Tuesday

Central Banks

  • Federal Reserve Chairman Jerome Powell put the brakes on interest-rate cut speculation for 2019 in a press conference last week, arguing that inflation was being pulled down by “transitory” forces. “We don’t see a strong case for moving in either direction,” Powell said after officials left the main rate unchanged. U.S. stocks fell
  • Still, two Fed officials laid out the case for a possible cut just days later. St. Louis Federal Reserve Bank President James Bullard and Chicago Fed President Charles Evans, both policy voters this year, expressed caution Friday over weak prices and said the central bank may have to act to lift inflation out of a persistently low trend.
  • It’s a busy week for rate decisions: Australia and Malaysia (Tuesday), New Zealand and Thailand (May 8) and the Philippines (May 9), with the potential for rate cuts across the region

Earnings

  • China and Hong Kong were firmly in the spotlight April 29, as more than 60 companies worth some $2.6 trillion from the two markets reported, according to data compiled by Bloomberg
  • Profit rose at China’s largest banks including Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Bank of Communication Co. But bad loans are also growing
  • In Tokyo, SoftBank Group Corp. is set to report May 9. Separately, a group of executives at SoftBank are reportedly considering an initial public offering for its $100 billion Vision Fund, according to a person familiar with the situation

Geopolitics

  • Kim Jong Un oversaw a live-fire military exercise Saturday that potentially included North Korea’s first ballistic missile launch since 2017
  • Two U.S. Navy destroyers conducted “freedom of navigation” operation in South China Sea on Monday, Reuters reported, citing a U.S. military spokesman
  • The U.S. said on Sunday it’s sending an aircraft carrier strike group and bomber force to the Middle East to send an “unmistakable message” to the Iranian regime, citing “a number of troubling and escalatory indications and warnings” it suggested were linked to Tehran

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