Hong Kong: Asian markets rose on economic optimism but gains were capped amid rising US-China tensions and uncertainty over a further round of US stimulus, which also kept investors guessing.
“Activity has started to normalise in both Europe and North Asia, albeit with localised lockdowns to contain virus clusters,” said BlackRock analysts in a note. “The unprecedented policy response has boosted risk assets. Wrangling over the size and makeup of a new US fiscal package is intensifying as key benefits expire and states face huge budget shortfalls. We could see a $1-1.5 trillion fiscal package that extends some (but not all) federal stimulus measures through late-2020.”
Japan’s Nikkei index rose 1.7%, Australia’s S&P ASX 200 index advanced 1.88% and Hong Kong’s Hang Seng benchmark leapt 2%. But China’s CSI 300 is underperforming and ended flat as tensions with the US over technology could heighten in the coming days.
Japan’s factory activity contracted at the slowest pace in five months in July, South Korea’s manufacturing activity data showed shrinkage was at a much slower pace last month, and China’s Caixin manufacturing PMI surprised markets by jumping to 52.8 in July from 51.2 in June, marking the highest point since February 2011.
Hong Kong’s market has been rallying on hopes that more Chinese technology giants will list in Hong Kong amid hostilities with the US. The Hurun Global Unicorn Index 2020 published on Tuesday showed the United States and China were home to 80% of global unicorns. US topped the tally with 233 and China’s 227 gave it the second rank.
Earlier this week Hong Kong launched a new, Nasdaq-style technology board — the Hang Seng Tech index, as more Chinese tech giants are seen turning to Hong Kong.
“The reopening of the global economy has led sentiment on output and new orders to pick up sharply from the March-April lows in most major production hubs,” Barclays economists Akash Utsav and Pooja Sriram said in a note.
“Stabilising domestic demand, output and employment were major sources of improvement in the July PMI data. However, the elevated number of new daily cases poses a potential downside risk to recovery.”
Later in the week the US monthly jobs report will be a major highlight as the country faces a fiscal cliff. A key stimulus measure – an emergency extension of unemployment benefits – is also expiring.
Financial markets are also hopeful for another round of US stimulus as the US Senate races against the clock to push through a deal before the summer recess on 7 August.
The Reserve Bank of Australia held rates, as expected, and the Reserve Bank of India decision on August 6 looks likely to be a close call.
“We now expect the RBI to reduce policy rates by 25 basic points (bp),” Goldman Sachs economists Prachi Mishra and Andrew Tilton said. They trimmed their forecast from an earlier expectation of 60bp by end of Q3.
“We now expect the remaining 35 bp of cuts in the final quarter of the calendar year. While it is not our base case, a decision to hold rates steady at the August meeting remains a significant possibility.”
New Xinjiang sanctions
US-China tensions also pose a resistance to the market rally after new US sanctions announced last week on some Chinese entities and government officials that are involved in Xinjiang affairs, and a potential ban on TikTok’s operations in the US.
US President Donald Trump escalated tensions with China with the threat to ban TikTok from the United States, claiming it was a threat to national security. He has given Microsoft 45 days to buy the app from its Chinese owner, ByteDance.
“So it’ll close down on September 15th, unless Microsoft or somebody else is able to buy it and work out a deal — an appropriate deal,” Trump said at a meeting with tech workers.
China’s foreign ministry spokesman said this was against the principles of the market economy and the WTO’s principles of openness, transparency and non-discrimination. He described the situation as "outright bullying."
Gold was flat and US Treasuries were slightly firm with the 10-year yield dipping a basis point to 0.54%.
Asian credit markets were firm with the Asia IG index moving in two basis points to 69/70. Primary markets are expected to get busy in the low rate, yield hungry environment. The Agricultural Development Bank’s CNH bond issue, and Yiwu State Owned Capital’s Reg S 3-year dollar bond offerings are in the market.
Also on Asia Times Financial
Foreign Exchange: Gold resumes climb as US dollar struggles
# Japan’s Nikkei 225 advanced 1.70%
# Australia’s S&P ASX 200 climbed 1.88%
# Hong Kong’s Hang Seng index jumped 2%
# China’s CSI300 was flat
# The MSCI Asia Pacific index added 1%.
Stock of the day
China-based e-commerce platform and food delivery giant Meituan Dianping rose as much as 10.5% after hitting an all-time high of HK$221.60 on southbound investment flows from mainland investors.