Central banks, trade tensions to drive markets

Positive start to the week for Asia

Going against the trend in the past couple of weeks, a positive commencement to the week for Asia markets appeared to be the case. This comes on the back of a moderate recovery in recession fears for Wall Street going into the end of last week and the clear absence of the ratcheting up of trade tensions and geopolitical unrests over the weekend. On the converse, President Donald Trump who convened with Apple CEO Tim Cook had made a strong case for investors to carry hopes for improvement after the President noted that a ‘good case’ on tariffs had been made in Apple’s situation. This is significant for markets seeing this favourite amongst the US FANG stocks having been hit in the past weeks on the back of the latest tariffs proposition.

Separately, geopolitical tensions sustain, but it appears to have taken a relatively peaceful course in Hong Kong’s case. The first largely peaceful rally in 11 weeks were reported to have taken place according to the Straits Times. While further clashes should not be ruled out, this will temporary lay to rest some concerns of Chinese intervention that could exponentially escalate the situation.

Volatility remains the mainstay

All the above said, there may perhaps be little doubt that volatility would sustain going forth. As told in our Asia week ahead note, US-China trade tension concerns and central banks watch will be key this week. The fact remains that the US administration is hesitant in engaging in a trade deal with China at present. Doubts casted on Huawei’s license extension alongside a decision to be made on Monday with regards to the matter according to President Trump also comes on the heels of China’s vow for retaliation, items that could further rock the market this week.

Meanwhile on monetary policy, central bank minutes from both the Federal Reserve and the European Central Bank (ECB) are expected. Investors will likely be looking more to the Jackson Hole symposium for an updated view by the Fed, with the event also being a major one prior to the September 1-18 Federal Open Market Committee (FOMC) meeting where a rate cut is expected. As it is, the positive Asia open and the clear abating of fear, as told by USD/JPY (大口）’s trade to $106.30 levels, are suggesting that hopes for support permeates. The fear here is that the Fed may not deliver despite growing concerns that the Fed had fallen behind the curve in easing monetary conditions. One to watch. The ECB’s July minutes meanwhile would be parsed for evidence of rate cut suggestions and other stimulus plans.

Friday: S&P 500 +1.20%; DJIA +1.44%; DAX +1.31%; FTSE +0.71%