Market Close Aug 25

Trade deal progress energises investors

US-China call on trade lifts hopes; Gold, US Treasuries dumped; Jackson Hole optimism to sustain rally

Trade deal progress energises investors
Trade officials for China and the US spoke on the phone on Monday and reaffirmed their commitment to the Phase-1 trade deal agreed in January. File photo by AFP.

(ATF) Hong Kong: Investors are loading up on risk after talks between US and China on implementing the trade agreement and on the back of a stream of vaccines and treatments for the coronavirus.

The office of the US Trade Representative said the two sides discussed significant increases in purchases of US products by China, as well as future actions needed to implement the agreement. China’s official Xinhua News agency said the two sides agreed to create conditions and atmosphere to continue pushing forward implementation of the trade deal.

This boosted stocks across the region with Japan’s Nikkei 225 benchmark climbing 1.35%, Australia’s S&P ASX 200 adding 0.52%. But Chinese equities underperformed with the CSI 300 edging up 0.13% and Hong Kong’s Hang Seng benchmark dipping 0.26% after its recent hefty gains.

As investors sought riskier assets, gold tumbled to $1,925 per ounce and US Treasuries also weakening with the 10-year yield up 4 basis points to 0.70%. The US dollar has steadied and come off recent lows to trade above the 93 level against a basket of currencies.

Overnight, biotech company Moderna Inc said it had held talks with European Commission to supply 80 million doses of mRNA-1273, with the option of buying an additional 80 million doses. This comes on the heels of USFDA authorising the use of blood plasma from recovered Covid-19 patients as a treatment option. This comes as University of Oxford and AstraZeneca Plc are developing a genetically modified shot and Pfizer and BioNTech's experimental Covid-19 vaccine BNT162b2 has been chosen for a phase 2/3 efficacy study of 9,000 participants following success in a phase-1 trial.

Global initiative

The World Health Organisation said there were 172 economies now in talks to potentially participate in COVAX, a global initiative aimed at working with vaccine manufacturers to provide countries worldwide equitable access to safe and effective vaccines, once they are licensed and approved.

“A vaccine ahead of the US Presidential elections would almost certainly give Trump’s campaign and popularity a huge, much needed boost and comes as the Republican convention takes place this week,” said Fiona Cincotta, an analyst at City Index, referring to US President Donald Trump’s push to fast-track the British vaccine candidate by Oxford University and AstraZeneca. “Timing is everything”.

Looking ahead, investors are focused on the two-day annual gathering of central bankers and other policymakers, to be conducted virtually and open to the public for the first time, beginning Thursday. Markets will look for clues for what potential policy framework changes might imply for the medium-term inflation outlook.

"The Fed’s goal is not to create a dovish earthquake, but to anchor market expectations of long-term easing. We expect Powell to convey friendliness to asset markets and reassurance that the commitments to easy money and above 2% inflation should be believed,” Steve Englander, Standard Chartered's head of Global G10 FX Research and North America Macro Strategy, said.

Asian credit markets have also firmed up in sync with the overall risk-on environment with the Asia IG index moving in a basis point to 61/62 bps. Investors are monitoring Huangshan Tourism denominated bondsTencent Music’s mandate for a dollar bond, and Shandong Commercial’s price guidance for a 3-year bond.

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Asia Stocks

# Japan’s Nikkei 225 index advanced 1.35%

# Australia’s S&P ASX 200 added 0.52% 

# Hong Kong’s Hang Seng index dipped 0.26%

# China’s CSI300 edged up 0.13%

# The MSCI Asia Pacific index rose 0.47%.

Stock of the day

Clothing retailer Shenzhou International rose as much as 18.6% after it announced earnings which showed a slight increase in first-half profits despite a decline in top line items, with a steady gross margin. “The decline in consumer demand under the influence of the pandemic is only a phased phenomenon, and market demand will eventually usher in a rebound,” it said in a post earnings statement.