Market Close Jun 23

Investors spot green shoots, load up on risk

Trade dispute denial stokes risk rally; oil rides economic optimism; US, EU and German PMI numbers eyed

Investors spot green shoots, load up on risk
President Trump's comment that the US-China trade deal is 'fully intact' gave markets a lift. This photo shows him with Chinese Vice-Premier Liu He, who flew to Washington to sign the deal in early January. Photo: AFP.

(ATF) Hong Kong: Financial markets rebounded off the day’s lows after US President Donald Trump tweeted that the trade deal with China was 'fully intact' – overturning comments by White House trade adviser Peter Navarro, who told Fox News the deal was over.

The fundamental driver remains the same as economies reopen and investors are looking at the positivity of the rebound after the Chicago Fed National Activity Index surged in May, which, according to macro research firm BCA Research, “suggests a V-shape recovery is taking hold of the US.”

But BCA warned that the rapid bounce was a result of pent-up demand and the enormous stimulus. “However, pent-up demand is a finite source spending and it will be satiated. As a result, a strong recovery in Q3 and potentially Q4 will likely ebb in 2021, especially as the US fiscal thrust will become somewhat of a headwind next year,” BCA Research said.

Asian markets recovered from the day’s lows in relief that US-China trade remains intact. Japan’s Nikkei 225 benchmark rose 0.5% and Australia’s S&P ASX 200 index clawed back morning losses to end up 0.17%. Hong Kong’s Hang Seng index jumped 1.62% after the previous day’s slide on worries about a new security law, and China’s CSI 300 benchmark advanced 0.48%.

Oil prices rose on the economic optimism with the WTI up 0.9% and Brent up 0.5%.

Japan's data mixed, Australia's also better

Earlier in the day, Japan’s services PMI jumped to 42.3 from 26.5 although the manufacturing PMI, declined to 37.4 from 38.4 indicating the path to recovery remained uncertain.

“While the manufacturing PMI weakened a little further in June, the rebound in the services PMI has further to run as virus-related restrictions are eased,” said Marcel Thieliant, Senior Japan Economist at Capital Economics.

Australia’s PMI numbers for June showed the manufacturing PMI returning to 49.8, just short of the 50-threshold indicating growth, while the services PMI leapt to 53.2 from 26.9.

“Be very clear though, 53.2 – though marking a growing services environment – does not mean business as normal. If the difference between 50 and last month's 26.9 index for services was an indication of how far service activity fell that month, June's reading of 53.2 suggests that about one-eighth of that single month's decline was clawed back,” Robert Carnell, ING Bank’s Regional Head of Research for Asia-Pacific, said.

Credit markets rebounded, with the Asia IG index moving in a basis point to 83/84 bps, off the morning wides of 87/89. Sovereign CDS are marginally tighter over the trade relief. This is bound to give a fillip to the primary market and the deal pipeline will get busier in the days ahead.

Later in the day PMI releases due from Germany, the EU, the US and the UK will be closely monitored for further signs of recovery.

“The PMI surveys provided an early indication that the worst of the economic impact from the virus outbreak appears to have hit in April, with the global PMI staging a record rise in May, albeit remaining worryingly weak by historical standards,” Chris Williamson, Chief Business Economist at IHS Markit, said.

Also on Asia Times Financial:

Property first off the blocks as China's economy rebounds 

HSBC upgrades e-commerce stocks as consumers stay home 

China to smooth domestic sales by export enterprises

Foreign Exchange:

Asia Stocks

# Japan’s Nikkei 225 advanced 0.5%

# Australia’s S&P ASX 200 climbed 0.17% 

# Hong Kong’s Hang Seng index jumped 1.62%

# China’s CSI300 rose 0.48%

# The MSCI Asia Pacific index added 0.45%.

Stock of the day 

Shandong Weigao Group rose as much as 5.3% after it said it raised HK$900 million via a share placement. Funds would be used for investments in healthcare business and as general working capital for its operations.