Asia market morning update - Geopolitical risks in view

Watching the slew of data out into the end of the week, we are perhaps still in search of a clearer picture on growth.

Despite the better than expected Q4 GDP numbers out of the US, Wall Street had largely overlooked the backward-looking data and allowed the heightened sense of geopolitical risk to guide Thursday’s trade. Both the Dow and the S&P 500 index ended the session in red, albeit a mild decline of less than 0.3% with the momentum showing signs of wavering.

As we know, the delayed Q4 GDP release outperformed expectations at 2.6% quarter-on-quarter. This is a pleasant surprise against the consensus 2.3%, which had certainly been viewed as carrying further downside risks in light of the recent weak showings in retail data. All said, the detailed numbers reflected resilient consumer spending and business investment that should help to ease some worries on US growth performance. Exports, however, were noted to be a soft spot that could really use some breakthrough in the US-China trade deal that is noted to be expected soon.

As it is, geopolitical risks remain a significant item in investors’ mind as exhibited in the Trump-Kim stalemate in Vietnam yesterday and the clashes in the India-Pakistan border. While the abrupt end to the summit had been an unpleasant surprise for the market, perhaps anticipating nothing more than a repeat of the Singapore summit, the options may also be limited moving forward. In terms of implications for markets, this does not represent any immediate escalation either and would likely return us to a waiting game despite the dip seen in Asia markets in the immediate aftermath.

One would perhaps find the US-China trade item one to look at again with US noted to be preparing a final deal for signing as early as mid-March. White House economic advisor Larry Kudlow had been one to lend his voice to affirm the ‘fantastic’ progress in talks thus far.

The lack of direction for Asia markets trade is expected into the end of the week, watching the Chinese Caixin manufacturing PMI next. Downside risks could again be seen with the data following the official manufacturing PMI’s slide to a 3-year low. That being said, the market had also been quick to bounce back yesterday, shrugging off the data on the Chinese New Year effects. The same may not be ruled out in today’s release. Notably, news of MSCI raising the weight of large-cap A-shares may instead be a boost for China markets with the prospect of increased inflows, one to watch.

Yesterday: S&P 500 -0.28%; DJIA -0.27%; DAX +0.25%; FTSE -0.46%