Market Close May 29

Investors pause ahead of PMI data, Trump response

Trump response on Hong Kong awaited; PMI data next week to provide major insights into global economic trends in May; China CDS underperforms credit markets

by Umesh Desai
Investors pause ahead of PMI data, Trump response
A Chinese investor takes notes in front of a screen displaying prices of shares (red for price rising) at a stock brokerage in Nanjing, in eastern China's Jiangsu province, in this file photo from 2017. Asian markets were defensive ahead of President Trump's response to China imposing a security law in Hong Kong. Photo: ImagineChina via AFP

Hong Kong: Financial markets turned defensive ahead of US President Donald Trump’s press conference on China today (tonight Asia time), where he will detail his response to China’s parliament approving a national security law for Hong Kong.  

“The damage to Hong Kong will be compounded by the US State Department’s assessment, announced on Wednesday, that the city no longer enjoys a high degree of autonomy,” Julian Evans-Pritchard and Martin Lynge Rasmussen, economists at Capital Economics, said in a note.

“It’s up to President Trump to decide what actions to take in response and we should get a bit more clarity on that front later today. But it could pave the way for US sanctions on firms and individuals in Hong Kong, as well as restrictions on US exports of sensitive technology to the city.”

Japan’s Nikkei dipped 0.18% and Australia’s S&P ASX 200 index dropped 1.63% ahead of Tuesday’s central bank meeting, when rates are expected to be kept unchanged.

“While guidance is expected to remain dovish, the (Australian Reserve) Bank will likely focus on the effectiveness of policy support already delivered, which will likely read more upbeat in terms of the Bank's expectations for the economic outlook,” BofA Securities analysts said in a note.

Hong Kong’s Hang Seng index dropped 0.74% and the CSI 300 advanced 0.27%.

Tensions expected to remain elevated

The broad market expectation was that tensions between the world’s two largest economies would remain elevated ahead of the US elections.

“The path looks set for further confrontation in the run-up to (the presidential election in) November, most particularly with the world media’s attention again now front and centre on Hong Kong. The risk now is that Hong Kong becomes a political football in the US-China dispute,” Jefferies' Global Head of Equity Strategy Christopher Wood said.

“Whichever way US politics goes in November, Beijing will have seen enough already to assume that a Cold War outcome is now a distinct possibility, if not yet necessarily a probability. This means that in the political area it has less incentive to play nice in its dealings with Hong Kong and Taiwan, while in the technological area it will be more determined than ever to end its dependence on US technology.”

Credit markets also turned jittery ahead of Trump’s briefing with the Asia IG index widening 3 basis points at 103/104 bps and sovereign names were 2-5 basis points wider. China was the under-performer widening 5 bps to 56/58 bps.

In the week ahead, financial markets will eye PMI business surveys which will provide the first major insights into global economic trends in May, after showing early signs of a pick-up in April.

“If lockdowns are lifted further in coming months, as planned, a return to growth looks possible for many economies as we head into the third quarter,” said Chris Williamson, Chief Business Economist at IHS Markit.

”With markets showing signs of reduced pessimism on the economic outlook, analysts will therefore be hoping that the final global PMIs will confirm an easing from April’s unprecedented rate of economic contraction.”

Also on Asia Times Financial:

China faces mounting pressure over HK security law 

Chinese insurers can now invest in bonds 

South Korea is the pivot in the Huawei wars

Foreign Exchange: As Hong Kong stocks slide, yuan regains footing 

Asia Stocks

· Japan’s Nikkei 225 eased 0.18%

· Australia’s S&P ASX 200 dropped 1.63% 

· Hong Kong’s Hang Seng index retreated 0.74%

· China’s CSI300 climbed 0.27%

· The MSCI Asia Pacific index fell 0.76%.

Stock of the day 

Shenzhen listed electric car battery maker Guoxuan High-tech rose as much as 10% after Volkswagen acquired a majority stake in the company. The stock has surged 30% this month and rose on Friday to a level not seen since July 2017.