Breather for Asia markets

Talking up the G20 stakes for US-China relations

The macro backdrop was little changed for Wall Street overnight seeing markets waiting for direction from the Federal Open Market Committee (FOMC) meeting next week and weighing the tariffs threats from President Donald Trump. The notable new development had been the raising of stakes for the G20 meeting. President Donald Trump on Tuesday was seen brandishing the trade deal covering terms negotiated earlier in the year which he is demanding China to return to. As Bloomberg reported, White House Acting Chief of Staff Mick Mulvaney had perhaps best described the situation suggesting that the Meixco tariffs conclusion had now emboldened the President. Furthermore, the meeting would be an opportunity to resume talks than to see a deal come through as we have suggested yesterday.

Wall Street broadly concluded little changed seeing the Dow and the S&P 500 index ending near neutral despite a positive start. The S&P 500 index can be seen briefly testing the 2900 level but was sold down once again against the backdrop of trade uncertainty to continue with what could be a rangebound trend until greater clarity can be sought.

Source: IG Charts

US CPI watch

Against the current backdrop, some of the recent questions that were posed are as follows.

1. Could the markets be pricing in the chance of a Fed rate cut too early?
2. Can US-China trade tensions further escalate?

The probability of both the abovementioned questions currently point to a yes, but amid the uncertainty particularly with regards to the latter trade item, the Fed may be compelled to move and that will be the big question going into the week ahead.

The US dollar index can be seen repeatedly testing the uptrend support as the market contemplates the prospects of a rate cut. Watch the US CPI data release this week among other updates including retail sales and industrial production. Unless we see a significant surprise from the 0.2% month-on-month consensus, expect the market to largely trudge along awaiting the Fed’s guidance next week. A miss here could be one to increase the expectations for a rate cut and see prices dip past support.

Source: IG Charts

Asia open

Asia markets are due for a breather alongside the US into this midweek trading day with the lack of fresh drivers. While regional markets saw the boost on Tuesday from China’s support towards infrastructure investment, this may be exhausted into Wednesday to find regional markets trading alongside to their own tune. As mentioned above, watch the US CPI data, but prior to which, China’s May CPI and PPI numbers will be released. In particular, look out for the PPI trend after China’s trade data surprised on Monday for any market repercussions.

Yesterday: S&P 500 -0.03%; DJIA -0.05%; DAX +0.92%; FTSE +0.31%