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ASX200 reclaims early losses to push back to fresh post-pandemic highs

Asian markets trade mixed, as financial stability fears plague Chinese stocks, ASX200 reclaims early losses, Aussie jobs data beats estimates - shows effects of JobKeeper’s end and US Retail Sales to highlight tonight’s trade.

It’s ended up a relatively mixed day in Asian markets, as market sentiment skews in a very slight way to the bearish side. After what was a muddled lead from Wall Street, which saw the US 500 decline from record highs as a quirky extension of the chaotic trading activity in Coinbase shares last night, risk-assets have continued to waffle along today, as implied volatility in the market stays at its post-pandemic lows.

Although nothing really seems to be inspiring widespread exuberance amongst market participants, there is a general calm – a cynic may say complacency – in the market, with stocks generally looking biased to the upside, with the outlook for fundamentals remaining positive, despite a handful of prominent risks relating to the virus, the vaccine and broader global recovery.

The Australia 200 has managed to shrug off the early losses today that came mostly due to Wall Street’s negative lead, to be currently trading 0.6 per cent higher for the session, with the index pushing to new post-Covid-19 highs. It’s been a fairly narrow rally for the market however, with a resurgence in commodity prices, especially in crude oil, underpinning a jump in the materials and energy sectors today.

On the flipside of the market, the notable laggards have been the health care, utilities and telecommunications stocks.

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Aussie jobs numbers were the highlight of the local session

On the surface these managed to exceed economist estimates once again. The Australian economy was revealed to have added 70,200 jobs last month, with the unemployment rate dropping to 5.6 per cent, as the labour market recovery continued to gather steam.

Despite, the positive headlines figures, there were some concerning details in the data, that the market seemed to latch onto: all the jobs added to the economy last month were part-time, with full-time jobs actually contracting by 20,800, in a possible sign that the removal of JobKeeper is beginning to show.

The AUD/USD dipped off the back of the release, with the data reaffirming the Reserve Bank of Australia's (RBA’s) argument of persistent spare capacity in the labour market – though it does remain about the 77-cent mark at time of writing.

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Stocks in China and Hong Kong dip

There remains an edginess in the market about Chinese assets, with stocks in China and Hong Kong dipping today. The sell-off has come seemingly followed the PBOC’s liquidity injection today via its medium term lending facility, with the central bank pumping 150b-yuan into the financial system.

Although practically in line with expectations, the move seemed to prompt a drop in Chinese assets, as investors remain wary of tightening financial conditions amidst efforts from the Chinese Government to cool its economic recovery and deflate some financial excesses. Fears remain high too about the health of China’s credit markets, as market participants continue their efforts to gauge the risk of contagion from the ill-health of debt manager Huarong.

Focus shifts now to US Retail Sales data this evening, which – reflecting the steady flow of stimulus payments to US households – is expected to reveal a bumper 5.8 per cent expansion in retail consumption over the month.

Despite this very stronger forecast number, the question for the market, after Tuesday’s inflation numbers, is whether the data will elicit any strong reaction at all. Barring some extraordinarily high print, the markets seem pretty comfortable with how it has priced a very spicy US economic recovery.

Perhaps given that, the risk may be asymmetric and skewed to the downside around this event given the lofty expectations – especially given signs of a momentum rollover in US Treasury yields.

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