Most Read by Bloomberg In a session of many reversals, the S&P 500 ended lower after several attempts to stay in the green. An index of U.S.-listed Chinese shares snapped a three-day slide. U.S. 10-year yields jumped to 2.75 percent, after an earlier plunge that took them to around 2.5 percent. The Japanese yen and gold erased gains. The offshore yuan advanced. “It’s going to be volatile,” said Ellen Gaske, economist at PGIM Fixed Income. “Geopolitical risks are obviously elevated on a more persistent basis here. So I think that adds a degree of volatility to the markets, and that’s on top of the volatility in the interest rate markets that we’re already seeing because of the Fed’s move and because it’s uncertain how far the Fed will have to go. from here.” Pelosi Trip Spurs China Battery Giant Will Stop Factory Debut Pelosi became the highest-ranking American politician to visit Taiwan in 25 years, prompting China to announce missile tests and military exercises encircling the island. He plans to hold a joint press briefing with President Tsai Ing-wen at 10:53 a.m. Wednesday, Taiwan’s foreign ministry said in a statement. Pelosi’s trip creates a new pressure point for investors already grappling with the prospect of a US recession, global interest rate hikes and rising inflation. Analysts have warned of the risk of a clash between the world’s two biggest economies wreaking havoc on global markets. The story continues “China will show its displeasure by stepping up retaliation, but it won’t get out of hand given its economy is weak,” said Rajeev De Mello, global macro portfolio manager at GAMA Asset Management in Geneva. While the White House has tried to play down rising tensions by insisting there is no change in its position on Taiwan, which China considers part of its territory, Beijing has called Pelosi’s visit a “risky gamble” with serious consequences. Taiwan’s dollar hit its lowest level since May 2020, offsetting a decline on signs that local banks were selling the greenback to meet foreign capital needs. Stock markets in China and Hong Kong were the worst performers in Asia as security analysts described possible military responses from Beijing. Taiwan Semiconductor Manufacturing Co.’s US Depository Receipts. and Baidu Inc. declined, while those of Alibaba Group Holding Ltd. rose 2.5%. Some analysts warn that the impact of Pelosi’s visit will accelerate the deterioration of US-China relations. The concern is that the trip and China’s reaction to it worsens the long-term trade relationship and plays out in markets for weeks or more, with implications for bonds, according to BMO Capital Markets strategists Ian Lyngen and Benjamin Jeffery. Yields on the benchmark 10-year benchmark could fall below 2.5 percent this week, they wrote in a report. “The expectation is that China’s reaction will be mostly limited to some signaling actions, rather than anything really damaging to its economy, and therefore at this stage, we think the market reaction has so far been relatively mild.” , said Becky Liu, head of China macro. strategy at Standard Chartered Bank Plc, he told Bloomberg Radio. “We just have to worry about the medium to long-term effects.” However, investors may need to brace for a prolonged reaction in financial markets, which could support haven assets such as bonds. “Pelosi’s visit carries with it the presumption of a limited time frame for a marketable response. an assumption we would characterize as misguided,” BMO’s Lyngen and Jeffery wrote in their note. “Any response could be weeks or even longer away and for that reason we expect the geopolitical backdrop to once again contribute to a bullish base for the US interest rate market.” (The market is constantly updated. An earlier version of this story had spelling corrected by BMO strategist Ian Lyngen.) Most Read by Bloomberg Businessweek ©2022 Bloomberg LP
