Vaccine optimism soars but geopolitics in focus Vaccine optimism soars but geopolitics in focus Vaccine optimism soars but geopolitics in focus

Vaccine optimism soars but geopolitics in focus

Equities 5 minutes to read

Summary:  Optimism returned to the market with US stocks soaring overnight as Powell pledged unwavering support and unlimited ammo for risk assets and Moderna's vaccine proved promising. However the canary in the coalmine, is the deteriorating rhetoric between the US and China and this week will be all about geopolitics and whether the unstable relationship between the US and China is enough to topple the hope trade.

The shine of the overnight moves is fading in Asia trade, with regional bourses falling from session highs, US futures trading in the red, as geopolitical concerns have come to the fore, and vaccine optimism is tempered via the small sample size (45 patients).


It is not just tensions between the US and China on the rise, but Australia once again caught between superpowers is bearing the brunt of escalating tensions with China. Diplomatic tensions between the two countries are mounting as Australia has moved to support an investigation and inquiry into the COVID-19 breakout, refusing to be strong-armed by Chinese threats. But the rift goes as far back as Australia's ban on Huawei's participation in 5G rollout on the basis of security ground. 


China has moved ahead with the threatened tariffs on Australian barley imports and will impose an anti-dumping duty of 73.6% and an anti-subsidy duty of 6.9% on the commodity as diplomatic tensions between the two nations rise. A move that will no doubt incite ongoing tensions between Australia and China, as Australia, along with 62 other countries, moves in support of an independent investigation into the COVID-19 origins. China is Australia’s largest barley export market and the tariffs will impose significant pressure on Australian growers. But the industry is not a big export earner for Australia as a whole.


However, the threats do not stop there and China’s embassy in Canberra has warned of a consumer boycott on Australian goods and produce, causing serious concern to dairy and wine producers fearing they could be the next targets in China’s economic coercion. Watch out Treasury Wine, Bubs Australia and A2 Milk, even companies like Blackmores have relied on CHinese demand for vitamins and supplements.


The warning also eluded to a potential bypassing of Australia as a destination for both tourism and education, both tourism and education are major service export industries in Australia - Think Qantas, Sydney Airport, Idp Education. A threat that holds serious repercussions for the Australian economy, as China remains the number one purchaser of both Australian goods and services exports. While de-risking via diversification of Australian exporters into other markets like India and the rest of South East Asia would support long-term goals, reduced Chinese demand for Australian goods and services poses a near term risk for the Australian economy, particularly if other large scale exports like Iron Ore were to be targeted in the worst case scenario. Although at present, China needs Australian iron ore just as much as Australian exporters need China. 


These tensions are likely to continue to escalate. Balancing the ideological and national security allegiance with the US and the trade relationship with China leaves Australia in a difficult position. However the AUD struggled to bat an eyelid amidst the strong risk on sentiment, remaining driven by hopes of a sharp recovery in economic activity and tightly correlated with S&P 500 futures. 


The US and China have long continued the slow-burn disentanglement and there is no going back to the pre-trade war relationship, but tensions are flaring as the COVID-19 blame game continues.


As hostilities mount it appears sentiment toward China is souring in the US, according to Pew research a record 66% of US adults held China in an unfavourable light, a survey high dating as far back as 2005. Another survey from a Washington based consultancy also confirms the shifting sentiment, reporting 40% of respondents said they won’t buy products from China. This potentially marks a new paradigm in the hostilities as the administration in Washington stoke nationalist sentiment across the broad population, fuelling a further breakdown in bilateral relations. 


Although the sample size is small, the findings are cause for concern as the upcoming elections in the US may provide increased impetus to elevate geopolitical frictions if they play to US voter support (which will remain a rolling calculus). This would increase the risk of mounting hostilities and fresh tariffs on Chinese imports. On that basis USDCNY bears watching closely as a barometer of China’s intent, with depreciation potentially being a catalyst for renewed risk-off sentiment. 


Meanwhile Washington’s rhetoric and actions towards China are becoming increasingly hostile as the COVID-19 pandemic fuels underlying frictions between the two superpowers. 


Last week, the Commerce Department decree preventing any chipmaker using American equipment from supplying Huawei without US government approval incited the conflict between the US and China, with Huawei threatening retaliation. The end game of forcing supply chains out of China continues to be dangled with reports surfacing that the US is considering tax breaks for companies to incentive relocating supply chains from China. 


In today’s trade, the news that the Nasdaq will be tightening up their IPO rules, a move that will make it harder for Chinese stocks to list, pulled US futures lower. A warning of tightening capital flows between the two nations as well as the lack of accounting transparency that has mired some previous Chinese listings. A letter from President Trump, published on twitter stipulating "the only way forward for the WHO is if it can demonstrate independence from China", also served as reminder that the pandemic is fuelling tensions. 


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.