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Pelosi’s Taiwan Visit Shakes the Stock Markets in US and Asia
03.08.2022

US House Speaker, Nancy Pelosi, visits Taiwan despite warnings from Beijing. This marks the first time a high-ranking US official has visited Taiwan in 25 years. Several people have called the move a mistake, including former US Ambassador to China Max Baucus. China views this event as a provocation by the US, and is surely going to react. How they will react remains to be seen, but the consensus appears to be that China’s answer will be “unprecedented but not unhinged.” US Stocks fell on Tuesday after the US official landed in Taiwan as traders were deciding what this means for the markets. The S&P 500 had fallen by 0.66% to 4,091.36, DJIA was down 1.22% at 32,396.76, and Nasdaq100 had shed 0.16% trading at 12,348.76. Not to mention that the Taiwan Stock Exchange Weighted Index had dropped as much as 2.1%.

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China considers the island as part of its territory despite the island’s desire to be an independent democratic state. Over the years, Taiwan has found a lot of independence from China such as having their own currency - the Taiwan Dollar, and their own female president Tsai Ing-wen. But mainland China gets antsy every time the US wants to visit Taiwan because it promotes and encourages complete autonomy from China. It is important to mention that China has never been a fan of US meddling in its affairs. Leading up to the visit, Hua Chunying, China’s assistant minister of foreign affairs, said, “if the US continues down the wrong path, we will take strong and resolute measures to protect our sovereignty and security interests.” Traders will be monitoring any China-US developments in case the tensions escalate and affect the market in any way.

US Stock Markets

Over the past few weeks, we have seen a significant rally in the stock markets as investors assume that slowing economic growth will force the Federal Reserve to pause rate hikes. However, some economists are worried about the economic outlook as it's difficult to predict at what rate the growth will slow or how long inflation will persist. This leaves the Fed dealing with pressure on two sides. On the one side, global demand is slowing, while on the other side inflation is not really showing signs of slowing soon.

Still, stock markets continue to go about their business as usual. Pinterest stock jumped a whopping 20% on Tuesday, despite falling short of expectations in their Q2 earnings report. The reason behind the climb is that Elliott Management announced that they controlled 9% of Pinterest’s shares, making it the largest investor. Similar news came from PayPal who said that Elliot Investment had a $2 billion stake in the company, again making it one of the largest investors in the company.

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The second quarter of 2022 appears not to have been kind to the social media companies as Meta, Twitter, and Snap all missed their targets. The social media giant, Meta, reported revenue of $28.8 billion, falling behind the projected $28.9 billion. Though the gap is relatively small, it caused a 5% drop for the company on July 27 when the Q2 report was released. Twitter is still battling with Elon Musk to force him to honor the $44 billion deal that he pulled out of. And Snap shed a whopping 25% when it released its quarterly earnings in July. On the other hand, Uber stock soared by 18.9% after the app delivered better-than-expected revenue in its second quarter earnings report.

Traders will be watching the Fed announcements as well as the stock market performance closely over the next few months. In addition to this, they will be focusing on the releases of US economic figures, which could hint at the state of the economy and the likely action of the Fed. The upcoming NFP report is among the most important ones, having the power to shake markets so traders will be keeping an eye out on that too.

Cryptocurrencies

In other news, the cryptocurrency market found itself predominantly ‘in the red’ yesterday. Polkadot (DOT) led the downfall with a drop to $7.70 from $9.23 at which it was trading just a couple of days before.

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Bitcoin, on the other hand, spiked above $23,000. It is likely that the cryptocurrency market experiences some volatility in the coming weeks or even months because of global economic developments. Inflation, interest hikes, gas deficit, geopolitical tensions, performance of stocks, bonds, and safe-haven assets, all play a massive role in how the economy is shaped. As a result, cryptocurrencies, along with other assets, experience turbulence as traders try to determine how the markets will settle.

Key Takeaways:

  • Pelosi visits Taiwan despite warnings from Beijing, causing US and Taiwan stock markets to fall.
  • The S&P 500 had fallen by 0.66%, DJIA was down 1.22%, and Nasdaq100 had shed 0.16%. The Taiwan Stock Exchange Weighted Index had dropped as much as 2.1%.
  • US stock markets rally as investors assume that slowing economic growth will force the Fed to cease rate hikes.
  • Elliot Management revealed major stakes in Pinterest and Paypal, causing the stock of both to soar.
  • Most social media companies miss their targets in Q2, while startups like Uber deliver better-than-expected results.
  • Polkadot (DOT) dropped to $7.70 from $9.23 yesterday while Bitcoin (BTC) spiked above $23,000.
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