Markets Sep 02

US-China tensions resurface, Australia outperforms

Wednesday’s data confirmed Australia’s first recession in 29 years but analysts expect its second quarter outcome will be 'less negative' than many others; US markets and dollar up overnight

US China tensions resurface, Australia outperforms
It's the start of Spring Down Under, but Australia's trade with China is still badly affected by geopolitical tension, which has disrupted wine and barley exports, as the country endures its first recession in nearly three decades. Photo: AFP. 

(ATF) US President Donald Trump’s threat to shut down TikTok reminded investors about the tensions between the world’s two biggest economies and kept markets on the edge on Wednesday. But Australia outperformed the region as its first recession in 29 years stoked hopes of more stimulus.

TikTok, a platform for creating and sharing short videos, has become a flashpoint for US tensions with China, with the Trump administration citing security risks.

“I told them that they have until September 15th to make a deal. After that, we close it up in this country,” Trump said on Wednesday.

China’s mainland equities benchmark CSI300 eased 0.2% and Hong Kong’s Hang Seng benchmark retreated 0.68% but Japan’s Nikkei 225 added 0.3% tracking the gains in Wall Street overnight.

Australia’s GDP in the June quarter fell more than expected – the 7.0% quarter-on-quarter plunge in Q2 GDP was weaker than the Bloomberg estimate of -6%, but shares rallied on expectation of additional stimulus.

“We suspect that the rebound outside Victoria will be sufficient to generate a small 0.5% q/q rise in Q3 GDP. And while the drop in GDP last quarter wasn’t much larger than the RBA had anticipated, it will keep the pressure on the bank to announce more stimulus,” said Marcel Thieliant, Senior Australia & New Zealand Economist at Capital Economics.

Wednesday’s data confirmed Australia’s first recession in 29 years – in the March quarter, Australia’s economy shrank by 0.3%.

“Despite looking bad, this is still a relatively strong outcome for Australia, when compared against the rest of the Asia-Pacific group, and with New Zealand still to report 2Q GDP, there is a good chance that Australia ends up in the 'less negative' half of the table as far as the cumulative loss to GDP since 4Q19 goes, a little ahead of Japan, but behind North Asian economies, China, Korea and Taiwan,” Robert Carnell, ING Bank’s regional head of research for the Asia-Pacific, said.

Overnight, the Dow Jones Average added 0.76%, the S&P 500 advanced 0.75%, and the Nasdaq Composite jumped 1.39%, following ISM data that showed US factory activity expanded for the third straight month to a reading of 56.0 in August, the highest since November 2018.

These economic numbers helped lift the dollar from its lows with the unit rising to 92.42 against a basket of currencies and putting pressure on gold prices, which are down 0.4%.

Asian credit markets are also rallying in sync with other asset classes and the primary issuance pipeline continues to flow. The Asia IG index is 2bps tighter at 58/59. Kaisa Group’s tap of their 2025 bondsChina South City concurrent tender and new bond offerBeijing Infra’s 3 -year bonds, and China Merchant’s greenbond issue are in the market, after Fujian Yango bond’s pricing overnight after oversubscription.