Asia market update - cautiously trading US-China trade

Evasion to safety

The back and forth in market sentiment continued to be the case against the backdrop of the uncertainty in US-China trade, among others. A day after the Trump administration granted the 90-day relief for US companies supplying Huawei, news that Chinese surveillance company may possibly be on the target board has returned a sense of wariness to investors. Seeing the reaction from China thus far, this will no doubt add fuel to fire.

With that, it is perhaps no surprise that the market had been playing it very cautiously. The overnight session had seen an apparent evasion to safety. Defensive sectors broadly fared better than the cyclicals on the broad-based S&P 500 index while the likes of USD/JPY (大口） slipped from the heights of $110.50 to $110.30 levels this morning. This preference for defensive stocks had likewise been the case when assessing the performance of the last 5-session period where the market sentiment wobbled alongside the concerns over Huawei.

After seeing prices on the likes of the S&P 500 index escape the downtrend, this consolidation may well sustain for some time until further clarity can be sought. The next juncture expected is none other than the June G20 meeting between the Presidents of US and China amid the lack of ongoing trade talks, though the likelihood of a deal being established then is faint.

Source: Refinity, IG

Source: IG Charts

Into the Asia open, look to a moderate decline across the region with the risk sentiment still leaning towards the risk-off end. As it is, early movers in the region including the ASX 200 and Nikkei 225 had receded 0.1% and 0.5% respectively, the former seeing the energy sector being the worst performer on hand. With crude oil prices having sunk to a 1-week low to $71 per barrel levels alongside a surprise 4.7 million barrels build up in crude inventories according to the EIA, the pressure will be on for Asia energy names as well.

For the day ahead, a slew of data are expected, though mostly coming from the Eurozone and US including the preliminary May Markit manufacturing PMIs. Politics may also have a stronghold for the market here in Asia as well as India announces their election results, one to watch for the USD/INR.

Watch the euro

As told above, politics will be a key driver in the coming sessions and perhaps more so for the EUR than most others. EUR/USD had been under pressure in this downtrend though finding some support around $1.114 at present. The awaited May Fed minutes provided little fresh interpretations beyond the patient stance from the Fed.

Moving into Thursday, however, we will find the European elections taking place that could introduce added volatility. While it may be some time before the results would be made known, the potential for populist parties to gain grounds adds to the downside risks for the Euro. German GDP and Ifo business index will also be due in the session ahead, items to watch for imperatives for moves.

Source: IG Charts

Yesterday: S&P 500 -0.28%; DJIA -0.39%; DAX +0.21%; FTSE +0.07%