Market Close Sep 09

Asian rebound on economy hopes dissipates in Europe, US markets

Equities tumble as Nasdaq, Brexit concerns mount; bonds rally. In Asia investors look past US-China tensions as economic recovery prospects lifted sentiment

Asian markets rebound on economy hopes
A man in a mask walks past a brokerage in Tokyo. Asian markets held firm despite comments by President Trump suggesting the US should 'decouple' from the Chinese economy. File photo: Reuters.

Global equity markets and oil prices tumbled on Tuesday as a sharp sell-off in technology stocks and rising concerns over Britain leaving the European Union without a trade agreement threatened the rally that had pushed world shares near record highs despite the coronavirus pandemic. 

Fresh tensions between Washington and Beijing came into focus but appeared to have little impact, after US President Donald Trump again raised the idea of decoupling the and Chinese economies.

"I think the market will shrug this off as electioneering but may find the lining up of technology stock sellers harder to process as the U.S. market returns from a holiday yesterday," said Chris Bailey, European Strategist at Raymond James.  

MSCI's gauge of stocks across the globe shed 2.08% following broad declines in Europe and modest gains in Asian markets. 

On Wall Street, the Dow Jones Industrial Average fell 632.75 points, or 2.25%, to 27,500.56, the S&P 500 lost 95.14 points, or 2.78%, to 3,331.82 and the Nasdaq Composite dropped 465.44 points, or 4.11%, to 10,847.69.

Earlier, Asian markets looked past the US-China tensions as economic recovery prospects lifted sentiment, but the tech sector woes continue to keep investors cautious.

Japan’s Nikkei benchmark rose 0.80%, China’s CSI 300 index advanced 0.54% and Hong Kong’s Hang Seng index edged up 0.14%, erasing the morning’s losses.

Australia’s S&P ASX 200 index also had a late kick to finish higher after drugmaker CSL said it would supply a coronavirus vaccine shortly. “Heads of Agreement signed between CSL and the Australian Government to supply 51 million doses of University of Queensland vaccine to Australia, with first doses scheduled for release from mid-2021 following successful clinical trials,” the company said in a statement.

In foreign exchange markets, the dollar rose slightly against a basket of currencies at 93.291 and stood up against the euro at $1.1800 with the main focus on Thursday's European Central Bank policy meeting.

Investors are leaning towards US Treasuries with the 10-year yield down 3 bps to 0.68%.

Growing hopes of a sustained economic recovery is driving investor sentiment in Asia, with China reporting a surprisingly positive export performance. Morgan Stanley expects to see the global and developed markets economies returning to pre-Covid-19 levels a quarter ahead of their original forecast.

Raised forecast

“China, which has been leading in the recovery, is likely to start growing at pre-Covid-19 GDP levels from 4Q20. We believe that China would have seen its GDP rise 8.4% above pre-Covid-19 levels by 2Q21,” they said in a note. “We expect emerging market economies excluding China (EMXC) to reach pre-Covid-19 levels by 1Q21, led by the heavyweight Asian EMs.”

Nomura economists raised their forecast for China’s economic growth in 2020 and 2021 to 2.2% and 9.4%, respectively, from 1.7% and 8.8%. It raised Q3 and Q4 real GDP growth forecasts to 5.2% y-o-y and 5.7%, respectively, from 4.3% and 4.5%.

“China’s recovery is undoubtedly impressive, especially when compared to other major economies that remain mired in the pandemic,” Ting Lu, Nomura’s Chief China Economist said.

Markets got off to a jittery start after Trump made aggressive comments about job losses and blamed China raising the spectre of heightened tensions.

“We lose billions of dollars and if we didn’t do business with them we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it,” he said referring to a future where the world’s two biggest economies no longer did business with one another. His remarks follow his comments after US jobs data last week where he criticised election rival Joe Biden for exporting American jobs to China.

UBS CIO said in a report the Sino-US Phase-1 trade deal should stay intact in the lead-up to the US election, although it was unlikely to be met with retaliation.

“China will also likely stay calm and take calibrated moves to avoid severe confrontation with the US, even when facing the Trump administration's high-profile challenges, amid recurring headline news on the risk of financial and tech decoupling,” they said in a note.

Asian credit markets were firm with the expectations of low rates keeping alive the search for yield. The Asia IG index was half a basis point tighter at 57-1/2/58-1/2. Primary market deals such as ENN Energy’s greenbondBOC Aviation’s 10-year dealLinyi City’s new mandate, and UOB’s tier 2 bonds are keeping investors busy.

  • Additional reporting by Reuters

ATF China Bond 50 Index: Banks weigh on ATF indices; China Everbright leads losses

Also on Asia Times Financial 

China Evergrande offers 30% off all homes amid debt crisis 

Beware the long arm of US justice, China's state media warns

Indian economy suffers from deeper malaise than estimates: Rajan

China shows off Covid-19 vaccines 

Foreign Exchange: Dollar steadies in FX markets

Asia Stocks

# Japan’s Nikkei 225 index added 0.80%

# Australia’s S&P ASX 200 advanced 1.06% 

# Hong Kong’s Hang Seng index edged up 0.14%

# China’s CSI300 rebounded 0.54%

Stock of the day

Biotech firm CSL Ltd rose as much as 3.1% after it said it would supply millions of coronavirus vaccines, should they be developed, to the Australian federal government.