Markets Sep 08

Trump's decoupling comments spook markets

Japan’s Nikkei benchmark rose 0.52% on hopes its new leader might boost stimulus, but  China’s CSI 300 index eased and Hong Kong’s Hang Seng index also dropped

Trump's decoupling comments spook markets
A man wearing protective face mask, because of the coronavirus outbreak, walks in front of a stock quotation board outside a brokerage in Tokyo in March 2020. Photo: Stoyan Nenov/Reuters.

(ATF) Investors remain edgy after US President Donald Trump floated the idea of decoupling from China, which added to the woes of the tech-led declines of recent sessions.

“We lose billions of dollars and if we didn’t do business with them we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it,” he said referring to a future where the world’s two biggest economies no longer did business with one another.

His remarks follow his comments after US jobs data last week, when he criticised election rival Joe Biden for exporting American jobs to China.

Japan’s Nikkei benchmark rose 0.52% despite posting its worst postwar economic downturn amid hopes of forcing its new leader to boost stimulus.

China’s CSI 300 index eased 0.50% and Hong Kong’s Hang Seng index retreated 0.57%.

Investors are leaning towards US Treasuries with the 10-year yield down 1 basis point to 0.7%. The US dollar recovered from its lows with the unit trading at 93.13 versus a basket of currencies. Gold edged lower at $1,926 per ounce.

And yet hopes for a sustained economic recovery have been revived globally after China’s surprise export performance. Morgan Stanley expects to see the global and developed markets economies returning to pre-Covid-19 levels a quarter ahead of their original forecast.

“China, which has been leading in the recovery, is likely to start growing at pre-Covid-19 GDP levels from 4Q20. We believe that China would have seen its GDP rise 8.4% above pre-Covid-19 levels by 2Q21,” they said in a note. “We expect emerging market economies excluding China (EMXC) to reach pre-Covid-19 levels by 1Q21, led by the heavyweight Asian EMs.”

Nomura economists raised their forecast for China’s economic growth in 2020 and 2021 to 2.2% and 9.4%, respectively, from 1.7% and 8.8%. It raised Q3 and Q4 real GDP growth forecasts to 5.2% year-on-year and 5.7%, respectively, from 4.3% and 4.5%.

“China’s recovery is undoubtedly impressive, especially when compared to other major economies that remain mired in the pandemic,” Nomura’s chief China economist Ting Lu said.

Asian credit markets remain firm with the expectations of low rates keeping alive the search for yield.

The Asia IG index was half a basis point tighter at 57-1/2/58-1/2. Primary market deals such as ENN Energy’s greenbondBOC Aviation’s 10-year dealLinyi City’s new mandate, and UOB’s tier-2 bonds were keeping investors busy.