Market Close Jul 29

Markets watchful ahead of Fed, US stimulus

Hong Kong boosted by Chinese listing hopes; Gold remains in demand and US dollar weak ahead of Fed; Jitters abound over next round of US stimulus

Markets watchful ahead of Fed, US stimulus
Health workers and civic staff wait for students at the Children Aid Society premises during a medical screening for the coronavirus in Mumbai on July 29, 2020. Photo: Indranil Mukherjee / AFP.

(ATF) Hong Kong: Financial markets turned cautious ahead of the Federal Reserve’s statement at the conclusion of the two-day meeting later today with the US Senate wrangling over the $1-trillion stimulus package also weighing on sentiment.

The $1-trillion Senate Republican coronavirus relief proposal unveiled by Majority Leader Mitch McConnell is yet to be passed and this Friday marks the end of the $600-a-week jobless payment scheme, but there looks like little room for compromise between the two parties.

“Unfortunately, the Republican-held Senate and the Democrat-led House are still far apart in agreeing on a second stimulus plan. Despite this, the Fed is not expected to make any monetary policy announcement at tonight’s FOMC meeting,” DBS economists Philip Wee and Radhika Rao said in a note.

“It could, however, highlight the risks of more bankruptcies and job losses if US lawmakers fail to deliver another package to counter the coronavirus resurgence.”

Japan’s Nikkei 225 index slid 1.15% and Australia’s ASX 200 index dipped 0.23%. But China’s CSI 300 index surged 2.42% and Hong Kong’s Hang Seng index rose 0.45%, as investors awaited more Chinese technology stocks to turn east after delisting from US stock markets.

Reuters News reported Chinese online travel giant Ctrip is in talks with potential investors about funding its delisting from Nasdaq because of rising US-China tensions.

Tencent subsidiary subsidiary Sogou Inc. said its owners had offered to acquire the Beijing-based web search company for $2.1 billion in a deal that would see Sogou delist from the New York Stock Exchange.

“The market has been anticipating more companies to pursue secondary listing in HK after the success of BABA, JD and NetEase. We consider there will be more synergies between Sogou and Tencent in search and smart devices in the future,” Thomas Chong, a Jefferies analyst, said in a note.

Optimism

That optimism helped investors look past Hong Kong’s prolonged recession and its GDP contracting by 9% in the second quarter. Its economy has now contracted for four straight quarters, as the worsening US-China relationship and measures to fight the coronavirus took its toll. 

“Due to more social distancing measures from Covid-19, we are revising downward Hong Kong’s GDP for the second half of the year as well as our full-year forecasts,” Iris Pang, ING Bank’s Chief Economist for Greater China, said.

“We expect Hong Kong GDP growth to be -10% in 3Q20, -5% in 4Q20 and -8.3% for the full-year, assuming that the tight social distancing measures continue to stay in place,” she said.

Gold came off its highs but continues to hover above $1,950 per ounce and the US dollar remains under pressure ahead of the Fed’s statements, which are widely expected to be dovish. The dollar index against six major currencies stood at 93.54, near its lowest since June 2018 this week.

“The last time we saw such a steep, prolonged upward trajectory was during the 2008-2011 period of the Financial Crisis and, until a vaccine becomes available, there is every chance that the flight to gold will continue over the coming months,” Seema Shah, Chief Strategist at Principal Global Investors, said.

“The very same dynamics are driving the dollar lower – dollar weakness looks like it will be a feature for the remainder of 2020 at least – possibly considerably longer. From an asset allocation perspective, the big winner could be Emerging Markets – particularly in the debt markets – as dollar-denominated borrowing and repayment costs are continuing to fall.”

Credit markets remain busy with bond offerings from China’s State GridRonshine Chinaand Sunac ChinaSecondary markets are marginally wider With the Asia IG index moving out to 75/76 bps and sovereign CDS widening by 1-2 bps.

Also on Asia Times Financial

China's AI industry to balloon as new infrastructure unfolds

Fitch revises Japan outlook to negative

Philippines launches mobile app to trade retail bonds  

Stimulus slowdown boosts bonds on local investment bets 

Foreign Exchange: To hedge against US dollar decline, think China and Korea

Asia Stocks

# Japan’s Nikkei 225 slid 1.15%

# Australia’s S&P ASX 200 dipped 0.23% 

# Hong Kong’s Hang Seng index added 0.45%

# China’s CSI300 surged 2.42%

# The MSCI Asia Pacific index eased 0.83%.

Stock of the day

Wuxi Biologics rose as much as 8% after the company said its profit attributable to equity shareholders of the company for the six months ended June 30, 2020 will increase more than 58% from a year ago.

“Such [an] increase was primarily attributable to more client projects we added into the group’s pipeline, expediting the development and manufacturing of potential treatments related to Covid-19 in support of its global clients,” it said in a statement.