Asia market update - simmering trade tensions

US markets shrugging off the trade tensions

Wall Street broadly ticked higher overnight, counting names such as the likes of Walmart and Cisco as ones inspiring the gains in the session. Over and above the earnings surprise, Walmart’s strong sales performance had also defrayed some of the worries on Wednesday from the poor retail sales reading even though these are backward looking numbers.

The notable change in the market had perhaps been the lack of reaction towards the latest ratcheting up of tensions. This follows the Trump administration’s targeting of Chinese telecoms on Thursday, a touchy subject for China. China had since reverted with stern warnings but the lack of additional countermeasures ceases to warrant extra attention from the market. The barometer for risk sentiment, USD/JPY (大口）, saw only a slight dip post the news of the telecoms sales limitation and can now be seen trekking higher to $109.80 levels this morning. Prices on the comprehensive S&P 500 index meanwhile edged out of the recent downtrend, stopping short of the resistance at 2891. Amid the uncertainty surrounding US-China trade and the recent wavering in economic data performance, look to prices consolidating around the current levels to await greater clarity. The 2800 handle serving as a strong support on hand.

Awaiting China’s policy support

This week we have noted that besides the abovementioned shrugging off heightening trade tensions, the Chinese market had inched higher despite poor data coming through. Wednesday’s release of April’s retail sales and industrial production saw both disappointing and the former at a 16-year low. For the speculative Chinese market, it had been a function of the sentiment over trade tensions and the policies expectations of late. Following the outsized fiscal policy support for the economy announced early in the year at the 2019 National People’s Congress, the Chinese government had largely adopted a wait-and-see attitude to further calibrate their tools. The latest eruption of trade tension concerns and the wavering of data thereby reinforces the market’s perception of further fiscal and monetary support to come. It is a case of the greater the blow-up of trade tensions and economic weakness, the greater the expectation of further policy support held by the market. This had seen to the likes of the CSI 300 jumping 2.25% on Wednesday itself. That said, the weakening of the yuan had sustained with USD/CNH tuning up to $6.93 levels this morning, the highest since end-November 2018. A continued decline here would work against the equity recovery, one to watch.

Asia open

Amid the gains seen on Wall Street, Asia markets are likewise expected to climb as trade tensions simmers. The local STI would however have the disappointing April non-oil domestic exports (NODX) readings to grapple with. Headline NODX arrived at -10.0% year-on-year (YoY) against the market’s -6.0% consensus falling in line with the data weakness seen in China. The decline in shipment had however not been restricted to China with lower demand from major trading partners including the European area, thus reflecting the broad-based weakness. A relatively quiet day lies ahead watching remaining data such as Hong Kong’s Q1 GDP and the UoM sentiment out of the US thereafter.

Yesterday: S&P 500 +0.89%; DJIA +0.84%; DAX +1.74%; FTSE +0.78%