US-China trade concerns

Risk sentiment wanes

While little had been expected out of the US-China trade talk this week besides a discussion of the broad framework, President Donald Trump’s unexpected lash out at China, accusing the country of ripping off the US had nevertheless dented sentiment. This may once again be positioning by the President as talks carry on, but with the matter evidently being the biggest item of concern on the table for markets, prices were seen slipping overnight on Wall Street and dragging Asia markets into Wednesday.

The good news here perhaps is the fact that we had Apple’s latest earnings for the quarter ending in June topping estimates while guidance had also beat expectations. Apple’s share price rose 4.5% in after-hours trade after declining earlier in the session. The guidance played to views that demand is stabilizing after consecutive quarters of concern over competition and revenue performance, particularly in regions such as China. While this may not be one to transpire to the likes of Samsung Electronics following the report of a fall in second quarter profit, it bodes well for the rest of the supply chain across Asia.

Bank of Japan’s July dovish hold

On central banks, the Bank of Japan (BoJ) had left their monetary policy unchanged as expected in the Tuesday meeting conclusion with the apparent dovish stance oozing from the policy statement. In particular, the BoJ stated that the bank will “not hesitate to take additional easing measures” should the momentum towards achieving their price target be lost, reflecting the bank’s willingness to move. That said, coming ahead of the Fed meeting, the BoJ clearly lacked the interest to lock themselves in, leaving the Federal Open Market Committee (FOMC) meeting conclusion the key to likewise guide the moves for the BoJ.

As told yesterday, we have seen the US dollar index attempting a break of the highs printed earlier in May after gaining through the week. Strong resistances nevertheless lie ahead and any break on the upside could see prices turn to retrace some of the gains with a sell-the-news phenomenon not ruled out should the Fed disappoint.

Source: IG Charts

China’s PMI

Notably, this morning’s China July PMI release had provided a mixed picture. On one hand, the official manufacturing PMI had surprised on the upside at 49.7, improving from the 49.4 in June and showing the effectiveness of policies targeting the sector. On the other hand, the services PMI had tapered to 53.7 from 54.2. Even as the latter remains in expansion territory, it does appear that some of the pressure had seeped into the services sector as the downtrend further form into July. Against the backdrop of heightened trade concerns, this would likewise cause pressure, but it will also be watching the Caixin numbers to come for confirmation.

Yesterday: S&P 500 -0.26%; DJIA -0.09%; DAX -2.19%; FTSE -0.52%