Trump caught staring into space as Xi Jinping moves on Hong Kong

By Trevor Hoey. Published at Jun 1, 2020, in Market Wrap

Despite plunging 95 points or 1.6% on Friday, the S&P/ASX 200 still registered a week on week gain of 258 points, representing an increase of 4.7%.

The ASX SPI200 Futures Index points to a negative start to the week, down 24 points to 5725 points.

It could be argued that this can’t be attributed so much to the ASX’s poor finish last week or the performance of overseas markets, rather geo-political ructions and the degree of volatility on the streets of the US, a situation that ignited after US markets closed.

It isn’t Wall Street that is under siege at the moment, rather it is the streets of 30 of the largest cities in the US where law enforcement authorities are failing to cope with rioting, violence and looting fuelled by long-running racial tensions that have once again been triggered by police action and inaction.

Though this started in just a couple of states it has spread quicker than coronavirus, and the Trump administration appears just as powerless in addressing the issue as it has been in containing COVID-19.

Such is the gravity of the situation, for the first time since World War II the 13,000 strong National Guard has been called on to assist in quelling a situation that local law enforcement jurisdictions and the US Army can’t control.

With shops looted, infrastructure burnt to the ground and even police call centres unable to respond to 911 calls, in Trump-talk many states in the US are definitely not open business.

The timing couldn’t be worse as the country tries to get back on its feet and it is difficult to see this not having an impact on the US stock market when it opens on Monday.

While these events were unfolding towards the end of last week and over the weekend, like a thief in the night Xi Jinping fired the first salvo in gaining control of Hong Kong.

Xi Jinping ready to stamp himself as the new Mao

Some 50 years after Mao Zedong unleashed his Red Guards to enforce Communist ideology and rid the country of capitalism, a 10 year period referred to as the reign of terror in which millions of people were tortured, persecuted and exiled, Xi Jinping is positioning China in such a way that it will be able to exert the same type of pressures in killing capitalism in Hong Kong.

It is the year of the rat in China, and Xi Jinping has taken on the role as the Pied Piper of the National People’s Congress, authorising the drafting of a national security law that will unleash a mischief of rats on Hong Kong, marking the end of 23 years of independence and incredible economic growth — and the inevitable exit of multinational businesses particularly in the financial sector.

This has the potential to have a greater impact on diplomatic relations and business ties between Asian countries and large western economies than the mere imposition of tariffs.

In 2017 China’s ruling Communist Party enshrined Xi Jinping's name and ideology in its constitution, elevating him to the level of founder Mao Zedong.

It was a unanimous vote to instil "Xi Jinping Thought" in China, one which enforced schoolchildren, college students and staff at state factories to join 90 million Communist Party members in studying what was termed a new era of socialism.

Xi Jinping has emerged as Mao’s fastest dancer, and it will be interesting to see how the Western world responds, as this can only be seen as the thin edge of the wedge.

While Trump’s immediate response referred to the introduction of measures in relation to trade and travel, one would expect this is early-stage posturing.

24 hours

Asian markets generally trended lower on Friday, but not to the same degree as that experienced in Australia.

The NIKKEI 225 came off 38 points to close at 21,877 points.

In what is a dark day for the people of Hong Kong, China approved a bill allowing it to supersede the country’s local government, effectively undermining the civil liberties, legal systems and the independence it finally gained in July 1997 when the British and Chinese governments agreed upon a one country, two systems principle.

Hong Kong is a thriving business centre and the Asian hub for the likes of financial institutions that are based in the world’s largest economies, including the US, the UK and Europe.

Consequently, it is difficult to see major world powers take a neutral stance with the possibility also that corporations will withdraw from what will now be viewed as a country that carries significant sovereign risk.

The Hang Seng fell 171 points or 0.7% to close at 22,961 points on Friday, but as this plays out there is likely to be significantly more volatility.

There was little movement in the Shanghai Composite as it closed at 2852 points.

European markets responded negatively ahead of Trump’s response to the China-Hong Kong situation.

Highlighting the potential corporate fallout in Hong Kong, particularly in terms of global giants potentially exiting the country, shares in HSBC and Prudential fell nearly 2% on Friday, placing a drag on the FTSE 100 which fell 2.3% or 142 points to close at 6076 points.

Mainland European markets also responded negatively with the DAX shedding nearly 200 points to close at 11,586 points.

The CAC 40 came off 1.6% or 76 points, closing at 4695 points.

The CBOE Volatility Index tracked in the vicinity of 30 points for most of the day, but finished nearly 4% lower.

This was in tune with how US markets traded, with investors having one eye on the boards of Wall Street, their minds on Minnesota and SpaceX just background noise, an event that the event that tended to fade into oblivion.

The Dow finished 17 points lower at 25,383 points.

The S&P 500 gained 0.5% 14 points to close at 3044 points.

The NASDAQ was once again the brightest light as it rallied 1.3% or 120 points, closing at 9,489 points, now only 350 points shy of its all-time pre-coronavirus high.

The Brent Crude Oil Continuous Contract surged late in the day from US$35.60 per barrel to US$37.61 per barrel.

Importantly, this was its best close since early March when it plunged from more than US$50 per barrel to US$34 per barrel in a matter of days.

While gold finished down 0.5% to US$1743 per ounce, it is looking solid again, sitting just US$25 per ounce shy of April’s long-term highest closing price of US$1788 per ounce.

On the base metals front, copper built on the previous day’s strong gain to close broadly in line with the circa 60 day high that was struck less than a fortnight ago.

Zinc, nickel and lead also made good ground.

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