Markets May 08

Investors cautious before trade talks, jobs data

Markets buoyed by a report that top Chinese and US trade negotiators will hold talks next week about the implementation of their trade deal

Investors cautious before trade talks, jobs data
Chinese Vice Premier Liu He is seen with US trade negotiators Robert Lighthizer, centre, and Steven Mnuchen in October 2019. The trade negotiators are expected to talk next week and evaluate China’s fulfillment of the phase-1 deal. Photo: AFP

(ATF) Asian markets were trading with a firm bias on Friday with the mood lifted by Wall Street’s rise overnight and a report that top Chinese and US trade negotiators will hold talks about the implementation of their trade deal.

Markets were rattled on Thursday after US President Donald Trump said he was “watching closely” if Beijing would increase its US goods purchases under the trade deal while suggesting that China may or may not keep its end of the bargain.

“With recent headlines raising concerns on renewed escalation in US-China tensions, the phone call between top trade chiefs (likely next week) will be closely watched,” a Barclays analyst said in a note.

It said the meeting is likely to an evaluation of China’s fulfilment of the phase-1 deal on the agenda and possibly how the Covid-19 disruption should be taken into account. It cited Steve Mnuchin who said on 4 May that he “has every reason to expect they [China] will honour this agreement.”

Japan’s Nikkei 225 has climbed 1.49% and China’s mainland’s stock index the CSI300 benchmark advanced 0.77%. Hong Kong’s Hang Seng index benchmark was up 0.75%, while Australia’s S&P ASX 200 added 0.7% and Korea’s Kospi index jumped 1.26%.

Overnight on Wall Street, the Nasdaq Composite rose 1.4% erasing year to date losses, the Dow Jones Industrial Average added 0.9% and the S&P 500 gained 1.2%.

Credit markets are also trading firm with the Asia IG index 1/2 basis point tighter at 118/120. Sovereign CDS had moved in by 1-3 bps.

DBS analysts said in a note that despite the recovery of global risk appetite since April, Chinese offshore credit spreads have not seen significant relief with IG and HY spreads still around 100bps higher compared to early March levels, based on a weighted basket of straight USD bonds. They said the high yield portfolio had underperformed IG credit by a wide margin.

“Chinese HY credit concerns still loom large despite a normalization of USD liquidity. Between an ongoing recovery in Chinese domestic activity and rising US-China tensions, we could see increased credit differentiation ahead. Credit of domestic-oriented companies could outperform relative to exporters, who face a trio of challenges from soft global demand, supply chain disruptions, and US-led tensions,” the note from DBS said.

Investors also have their eyes on the US jobs report for April, due to be released later today, which is expected to see a 21 million plunge in payrolls, according to a median forecast in a Bloomberg survey of economists calls.