Asia market morning update - trade dent returns

Digesting the tariffs probability

While Tuesday’s session did find confirmation that talks are set to carry on as planned between US and China, with delegates being led by Chinese vice-premier Liu He, news that China is preparing retaliatory tariffs should talks fail this week adding teeth to the situation. This is over and above the gradual digestion of the fact that Friday’s tariffs implementation from the US could become a reality and further hurt the precarious global growth situation. As it is, the implementation of the uptick of tariffs on $200 billion of Chinese goods to 25% from the current 10% is expected to bring China’s growth to the lower end of the growth target range for 2019. The ramp up, which is not a base case scenario, for additional tariffs henceforth may rock growth out of range and that is the fear for markets moving forward.

Against this backdrop, Wall Street took a more definitive directional trade on Tuesday, sliding across the board. The likes of the Dow and S&P 500 index declining 1.79% and 1.65% respectively, with the former being the biggest dip since early January. The drop had been broad-based as all sectors on the S&P 500 index collectively headed into red. Notably with the pullback, the CBOE volatility index, VIX, had leaped briefly above the historical average of 20, ending just below the level in Tuesday’s session. This had been a clear reflection of the jitters that had returned to a market choosing to err on the cautious end amid the uncertainty in trade.

Evasion to safety

While we had highlighted in our report at the start of the week that the evasion to safety would likely play out further this week, Tuesday’s market action had been one to confirm this. US treasuries saw demand picking up, sinking 10-year yields to the lowest since the start of the year. This is while gold prices and yen simultaneously strengthened.

Specifically, look to USD/JPY (大口） to slide further amid the likelihood of an exchange of tariffs into Friday. After prices gave up the 200-day moving average and the $111 level, the $109.77 support looks to come under threat in the short-term which could open up room towards the $108.23 support in the current range.

Asia open

Following a day of recovery, Asia markets are set to find pressure midweek with the renewed jitters within markets over trade tensions. Expect a sea of red beside the early movers whereby both the ASX 200 and Nikkei 225 can be seen clocking steep losses of 0.7% and 1.5% respectively in the early hours. China’s April trade data will be key, and the consensus is for soft numbers that may do little to change the situation from this morning.

While it is not a rush to the doors situation at present despite the decline expected in the day, due concerns may be paid for the likes of the local STI should prices extend further towards the 3200 handle and the key support at 3177.

Yesterday: S&P 500 -1.65%; DJIA -1.79%; DAX -1.58%; FTSE -1.63%