Increase in trade tensions (Afternoon analysis 18.09.2018)

China has announced that it will impose additional duties on almost all US exports. The markets do not react at all to another portion of negative information. The zloty, like other emerging market currencies, is stable and even gains in value.

Negative information is still coming. Even before the beginning of the US session, China has announced that, as part of its retaliation, it will impose a further 60 billion USD of additional duties on imports from the United States. From September 24th, practically all Chinese imports from the US will be subject to additional trade restrictions (110 out of 130 billion USD).

This means that the next move now belongs to the United States. According to the USTR (Office of the US Trade Representative) action plan published at night, if retaliatory action from China occurs (it has just taken place), the United States will immediately impose customs duties on all imports from the Middle Kingdom.

If this happens, it turns out that within 24 hours all American-Chinese trade will be subject to additional duties (both the US and Chinese imports). Therefore, the escalation of the trade conflict is unprecedented in recent hours. This significantly reduces the chances of any consensus in the coming months.

After all, the most recent scenario considered by the market was negotiations, which would stop the escalation of the conflict. Now this conflict has turned into a real customs war, which will not remain neutral to the US companies' performance, to investments in China or to global sentiment, whose risk of deterioration is now much greater than it was a day ago, for example. In our view, it can be particularly dangerous for the market to ignore this issue and there is a high risk that unjustified optimism may collapse suddenly.

Zloty goes up in green

The Polish currency is not an exception in the global market. As in the case of other emerging market currencies, the zloty appreciates slightly even though the inflow of information on foreign trade should trigger a completely different reaction.

The same applies to the behaviour of a broader market, it seems that too much optimism can quickly turn into a hiccup. The escalation of the trade conflict is not a positive event and may quickly turn into a rapid deterioration of sentiment and damage the zloty as well.