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Asia morning update: Month-end markets

Weak leads arrives from overnight markets that have returned after Monday’s holiday in both the US and UK.

Source: Bloomberg

Wednesday kick-starts the action-packed half of the week with China’s PMI data being the key for Asia.

Month-end trade

Into the month’s end, US markets were seen returning with selling across many sectors. On the comprehensive S&P 500 index, a shuffle into the defensive telecoms and utilities sectors was seen, coming after seven sessions of consecutive gains on the overall index. IT had been the only other sector seeing moderate gains, with strength underpinned by its phenomenal earnings outperformance for Q1 2017.

Notably, leading losses in the S&P 500 on Monday had been the energy sector, clocking a 1.3% drop on Monday. WTI futures slipped past $49.20 per barrel (bbl) overnight, with concerns ahead of US production reports. The market is currently having high expectations for the eighth consecutive weekly decline in crude inventories, to be gleamed from the official US EIA report on Thursday. With the May OPEC meeting a part of history, US supplies is expected to be pivotal for prices in the near term.

China PMI

The highly watched China PMI came in unchanged from the previous reading at 51.2, unexpectedly surprising on the upside when compared to the market’s median consensus at 51.0. Non-manufacturing PMI also showed signs of improvement for the Asian giant, climbing to 54.5 in the latest May reading.

The broad expectation within the market had been a moderation for Asia’s largest economy amid the recent pullback in production, fixed asset investments and also commodity prices. The latest indication for manufacturing PMI could be taken as a signal that the reversal from the peak production ramp up may not have worsened and could have stabilised instead. Evidently, the private Caixin gauge due on Thursday, which the market regard as having more transparency, could reverse market opinions. In the day, however, we could see the official PMI numbers providing Asian markets a reason to be relieved.

Separately, Japan’s industrial production arrived this morning missing market’s expectations at 4.0% month-on-month (MoM). Despite this being the highest MoM growth rate recorded since June 2011, the miss had weighed upon Japanese markets this morning, alongside the slide in USD/JPY overnight. The Nikkei 225 was last seen with 0.3% losses as of 8.40am Singapore time.

For the local Straits Times Index, the Chinese numbers provide a positive lead that could see it elevated from the trade around 3200 levels in the day. The turn of the page to a new month however reminds us that June had historically found softness on a monthly basis, though the recent powering up of Asian economies could lead us to seeing otherwise.

For the day ahead, look to Japan’s housing starts data and Thailand’s trade figures during Asian hours ahead of inflation data from France. US hours would find Chicago PMI and April pending home sales data.  

Yesterday: S&P 500 -0.12%; DJIA -0.24%; DAX -0.24%; FTSE -0.28%

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