Asian markets could again trade on defensive mode as US House Speaker Pelosi’s trip to Taiwan initially hit risk assets and supported safe havens. China started to react by implementing military drills around Taiwan while 21 People’s Liberation Army jets entered the southwest air defence identification zone. Equity traders will keep an eye on any trade disruption that could affect US and Chinese companies. Yesterday, risk became dry after reports noted that Chinese battery giant CATL was pausing its North American battery plant announcement due to the Taiwan trip. The battery plant was set to supply batteries to Ford and Tesla at a time when supply shortages were rampant within the auto industry.
On the risk front, attention will be heavily on any further US/Taiwan/China updates and China economic data. Any potential further escalations from China might hit Chinese giants listed in the US, such as Alibaba and Tencent. The Taiwanese contract chip manufacturer TSMC is also eyed amid the company’s over 50% market share in the chip production sector. Any restrictions in operations probably will be bearish for chip supply. Participants are eyeing any economic retaliation from China. The USD will likely work as a leading indicator for risk pressure against high beta pairs, especially on currency pairs of countries with close trade relationships with China.
