Market Close Aug 06

Market braces for more US-China tensions

Gold, base metal rally helps Australian stocks to outperform; More downside seen for the dollar; US-China tensions simmer

Market braces for more US-China tensions
US President Donald Trump speaks as he departs the White House in Washington DC, on July 29, 2020 en route to Texas. Photo: Jim Watson / AFP.

(ATF) Hong Kong: Investors scrambled for safety amid uncertainties related to the US pandemic relief bill and growing US-China tensions after US Secretary of State Mike Pompeo warned that his government wanted untrusted Chinese apps removed from US app stores.

“With parent companies based in China, apps like TikTok, WeChat, and others are significant threats to the personal data of American citizens, not to mention tools for CCP content censorship,” Mike Pompeo said at a press conference.

Meanwhile, Google said it had deleted more than 2,500 YouTube channels tied to China as part of its effort to weed out disinformation on the video-sharing platform.

While investors continue to offload risk, gold extended its winning streak hitting another record high with key economic data looming.

Gold stayed above $2,040 per ounce after hitting a new peak of $2,055 with stocks mostly lower across the region.

Japan’s Nikkei index fell 0.43%, Hong Kong’s Hang Seng benchmark retreated 0.69% and mainland China’s CSI 300 index eased 0.3%. But Australia’s S&P ASX 200 benchmark advanced 0.68% as miners were lifted by a base metal rally stoked by gold’s surge.

The US dollar fell against a basket of currencies with the day’s low of 92.52 signalling there could be more downside for the mighty dollar.

“The USD should stay under pressure, as the Fed remains fearful about the economy and thus is likely to ease monetary conditions at its next meeting in September. We expect the Fed to shift to ‘average inflation targeting’, which means the central bank may not start raising interest rates from their current levels near zero for up to the next five years. This would keep the USD in a downtrend – to the benefit of risk assets,” Bank of Singapore currency strategist Sim Moh Siong said.

The market is now expecting more progress on the US pandemic relief front ahead of the end-of-the-week deadline, although there is a still a chasm between the two sides.

Democrats are demanding another $3 trillion that would retain key benefits and add nearly $1 trillion in assistance for state and local governments. Senate Republicans have proposed a $1-trillion package that would slash the unemployment payment to $200 a week and eventually move to replace 70% of wages.

“With virus fears on the rise, jobs being lost and incomes squeezed, we feel the second phase of the recovery will be much more challenging, especially in the absence of a new broad and substantial fiscal package,” James Knightley, ING Bank’s chief international economist, said.

“And all of this suggests, financial markets optimism on a 'v' -shaped rebound could be severely tested in the next couple of months.”

US-China tensions bubbling

And the US-China tensions are not going away any time soon.

“US-China tensions remain a risk we foresee potentially bubbling up at any time. The US administration suggested that a Phase-Two trade deal wasn’t in the offing, even as China struggles to fulfil terms of a Phase-One deal amid pandemic-related obstacles,” Vanguard Group analysts said in a note.

Still, with the global coronavirus infection count now topping 18.7 million and the death count jumping above 700,000, the hit to the economies is keeping investors worried.

“The biggest challenge facing ASEAN+3 policymakers in the second half of 2020 will be balancing the trade-off between easing restrictions to revive their economies and risking another wave of infections,” Dr Li Lian Ong, group head and lead specialist for financial surveillance and acting group head for regional surveillance at AMRO, said. “Managing the exit from the raft of pandemic policies will be key to regional financial stability.”

Asian credit markets are marginally firm with the Asia IG index moving in a basis point to 67/68. The hunt for yield has encouraged new bond offerings Qingdao China Prosperity and BMW Finance have unveiled bond offerings.

ATF China Bond 50 Index: ATF indices close stable as financials post big moves

Also on Asia Times Financial

Foxconn expanding iPhone production in India 

Bank runs among China's small lenders on the rise

First judicial document on bond disputes released

Green light for green power projects 

PBoC data show lending has risen in almost all sectors

Foreign Exchange: 

Asia Stocks

# Japan’s Nikkei 225 fell 0.43%

# Australia’s S&P ASX 200 climbed 0.68% 

# Hong Kong’s Hang Seng index fell 0.69%

# China’s CSI300 eased 0.3%

# The MSCI Asia Pacific index dipped 0.19%.

Stock of the day 

Gaming company IGG Inc. rose as much as 33% after reporting a near doubling of net profit in the first half of the year and outlining a plan to “maintain its competitive edge by grasping opportunities in the “home-based economy”. After more than a year of decline, the Group’s blockbuster game “Lords Mobile” experienced a resurgence with monthly gross billing rising to over US$54 million during the Period and hitting a record high of over $60 million in July.”