Asia morning update - 'risk-on' day

Optimistic headlines on both US-China trade and the US government shutdown paved the way for the return of the risk-on atmosphere, due to find Asia markets following suit with gains.

Source: Bloomberg

The soft sentiment drivers for markets had circled President Donald Trump overnight with his lack of an outright objection to the border-security deal and the suggestion of his flexibility in the deadline for a trade deal with China. Certainly, an aversion to another government shutdown would clear some sense of political distraction and concerns with regards to the impact on growth. On the US-China end, following the dashing of hopes for a Trump-Xi meeting prior to the March 1 deadline last week, President Donald Trump’s latest hint of openness to extending the deadline lifted hopes for an eventual resolution. While it remains difficult to tell how close the two countries are towards achieving an agreement, President Donald Trump does appear eager to see a deal being reached enthusing the markets.

Notably, however, an extension may also be seen as the US not being willing to compromise on their demands, thus allowing more time for a deal to be ironed out. This again raises the stakes for the meeting this week in China and the implication for markets. Over and above the conclusion and next steps, the determination of whether an extension will be issued may be among the things to watch after this week’s high-level congregation in Beijing.

The hard facts to concentrate on for markets this Wednesday will be the likes of US’ January inflation reading, pertinent for the data-focused Fed. Expectations are for the month-on-month reading to stay unchanged at 0.2% and the year-on-year figure to moderate slightly to 2.1% from 2.2% in December. As heard this morning from Fed Cleveland president Loretta Mester, inflation will likely move below 2 percent in the first part of the year on the back of lower energy prices. Owing to the lag effect post the December plunge in crude prices, risks are to the downside. In turn, watch for any further receding of the greenback strength alongside the offset of the earlier haven bids.

Asia markets look set to tune up the day with gains, counting the hopes of US-China resolution from President Donald Trump’s potential extension to the deadline to meet with President Xi Jinping. For fear of sounding like a broken record at this point, the moves are still expected to be within consolidation across the likes of the Hang Seng Index and the Straits Times Index.

Trades to look at today

The technology sector ETF (XLK ETF) as with the NASDAQ look set to breakout on the upside with the strong momentum. News drivers, as mentioned above, had served to help in the past session. Look to the likes of the US CPI release in the upcoming session while a couple of earnings will also be seen from the said sector this week.

Technology Select Sector SPDR Fund

Support for the EUR/USD pair had served to be strong with prices now trading back above $1.13. Risks are still towards the downside, but the intraday momentum is expected to be supportive with the backing off from the US Dollar with the risk-on mood.

EUR/USD Mini

Yesterday: S&P 500 +1.29%; DJIA +1.49%; DAX +1.01%; FTSE -0.06%


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