Asia market morning update - what about tariffs?

ADP employment disappointment

Wall Street saw to the continued risk-on mood aiding US indices on its run. The S&P 500 index and Dow both clocked moderate gains on Wednesday, charging ahead with news of the reported progress in trade talks and shrugging off data disappointments overnight.

Both the March ADP employment and ISM services PMI came in short of the market’s expectations. The former printed a 129K read against the consensus 170K, which represented some signs of sogginess for the labour market. Although, it appears that investors knew better than to count on this data in light of the lack of strong correlation with Friday’s NFP itself. It would be crucial, however, for Friday’s headline payroll reading to show a significant jump from February’s 20K to reassure the market that the labour market is not heading towards the direction of a contraction.

Meanwhile the ISM non-manufacturing PMI disappointed, coming in at the lowest reading since August 2017, though well in expansion territory at 56.1. All said, however, we do have the 10-year yields up at 2.52% levels, reflecting the abating growth fears within markets at present. Friday’s payrolls release will be one for the greenback and the US indices flatlining at present, requiring the next boost forward.

US-China trade negotiations

To a large extent, the movements overnight had the US-China trade progress to thank following the report of progress marked towards a trade deal. This latest news on a 2025 timeline set for China to realise trade pledges further reinforces the likelihood and may perhaps be a positive news given the long runway. Although, the boost for equity markets in the near term would still fall to a large extent on the question of tariffs removal. Talks continues through to Thursday, one to continue watching for any trickling in of news or even the announcement of a deal signing itself this week. USD/JPY (大口） seen reflecting this improvement sentiment, edging up to 111.45 levels despite greenback weakness and narrowing yield differentials. Resistance up ahead towards 111.90.

Brexit no-deal

Separately on GBP/USD, one can see the convergence continuing with prices picking up despite the chaos that continues for Brexit. Prices had been enlivened to some extent with the latest vote by parliament to rule out a no-deal Brexit once again, though the cross-party talk between PM Theresa May and opposition leader Jeremy Corbyn had yielded little progress so far. The latter is expected to continue just as we wait for where the breakout of the GBP/USD will be with the downside risks so far contained following the gains overnight.

Asia open

The receding growth concerns coupled with sustained trade hopes provide support for Asia markets into this Thursday session. That said, as told above, investors remain intently awaiting for any determination on tariffs removal on US-China trade. Look to any signs of cautiousness from North Asian markets particularly with China and Hong Kong expected to be away on Friday for a market holiday ahead of US-China trade talk conclusions and the US March NFP release. A light data day is expected for the Asia region.

Yesterday: S&P 500 +0.21%; DJIA +0.15%; DAX +1.70%; FTSE +0.37%