Asia market morning update - a broken deal?

Cautious on US-China trade

President Donald Trump’s tweets are at it again, noting that the Chinese vice-premier is headed to the US to ‘make a deal’ and therefore enthusing US markets for a good part of Wednesday. The last hour, however, eventually saw to gains being erased with the jitters still rife within the market. The S&P 500 index concluded in a mild red just above its 50-day moving average while the Dow closed near-neutral. China’s commerce ministry’s warning that Beijing will retaliate had in part contributed to the concerns, conflicting with President Trump’s more optimistic tone. Once again, whether this is posturing, it will be difficult to tell but the heightened sense of volatility for markets looks to keep its place at least for the rest of the week. The CBOE volatility index last seen closing 19.4 just as various haven assets have been kept afloat. Look to more headlines coming through on the trade talks to be the primary driver for markets.

Will he or will he not?

One of the most frequently asked questions this week had probably been whether tariffs will really be exchanged this Friday. Monday’s market action had been of scepticism, before a digestion of the possibility in later sessions took prices significantly lower for Wall Street. This is also with the official notice from both countries readying more tariffs.

After the episode of tit-for-tat tariffs war seen between US and China in 2018, there is a greater sense that the two largest economies in the world would still converge towards peaceful negotiations to resolve their issues. The odds are that even if new tariffs are implemented this Friday on US-China trade, both countries would find ways to de-escalate a situation that does not benefit both sides. The short-term need to protect both country’s sovereignty, thus the barring of teeth, should be expected in this new age of a more confrontational foreign policy with the US.

As far as the S&P 500 index’s total put-to-call ratio is suggesting, there had been a pick up seen in investors looking for protection though this is nothing compared to the December 2018 phase showing the wait-and-see attitude in place. Retail contrarian from the IG client sentiment indicator likewise suggests a bullish bias.

China ‘broke the deal’ according to Trump

Amid the backdrop of sustained jitters over US-China trade and President Donald Trump’s latest provocative remark that China ‘broke the deal’, heightened risk-off sentiment is expected into this Thursday session. This latest comment conflicts with his tweet as mentioned above and adds further uncertainty to an already tense situation. USD/JPY (大口） reacting this morning with a slide past the $110 handle to threaten the $109.77 strong support when last checked. Look to further downsides should China once again add fuel to fire.

China’s April inflation reading will be expected this Thursday awaiting signs of acceleration. Meanwhile Philippines’ GDP and Japan’s consumer confidence are also due alongside an expected rate cut from the Philippines central bank.

Yesterday: S&P 500 -0.16%; DJIA +0.01%; DAX +0.72%; FTSE +0.15%