Asia market morning update

Dovish Fed support extends

Wall Street ticked higher on Thursday, helped in part by relief within markets and the technology sector boost. An earnings surprise from chipmaker Micron helped to power up the gains just as the broad market rose amid the recognition that the risk of a Fed hike had now been taken off the table.

The broad gains can be seen spreading across all but the financial sector on the S&P 500 index with the said sector sliding 0.3% on Thursday. No surprise this is the case in light of the receding yields. US 10-year yields fell by more than 7 basis points after the Fed meeting, returning to 2.54% when last checked. Both the interest rates outlook and the balance sheet management plan update playing a part here. As for the 2-10 spread, the gap had narrowed to the lowest since December 2018, a new normal to be getting used to amid the mixed data on hand.

The Fed’s apparent concern with regards to data displayed from this week’s meeting would likely indicate that a stronger streak of readings has to be present to warrant any reversion towards the earlier tightening stance. Watch the Markit manufacturing PMI out from the eurozone and US today for indication on the health of the manufacturing sector after the Japanese reading came in stronger, albeit in contraction territory.

Brexit extension

Notably, this morning saw the can kicked down the road for certain with regards to Brexit, though the options are looking limited on hand. The European Union upon request had approved an extension of the March 29 Brexit deadline, with the exact date contingent on whether Prime Minister Theresa May’s vote can pass her draft deal in the coming week. A third failure, which is the more probably outcome at present, would see the extension last until April 12.

GBP/USD had ticked up moderately in the morning with the affirmation of the outcome. However, in light of the gridlock between a deal not accepted, the lack of options for revision and a looming deadline, the risk for a hard Brexit amplifies. A realisation of which would severely undermine the British pound, one to watch in the coming week for indication of progress.

Asia open

The relief supporting Wall Street paints a positive backdrop for Asia markets going into the open on Friday. Early movers in the region including the Australian and Japanese market had all ticked up at the open, the latter returning from a market holiday. Gains are however expected to be shallow given the lack of prominent leads. Amid the persistent lack of volatility, underpinned by the uncertainty across geopolitics and growth, the concern within markets would be the sudden return of any shocks for markets that could cause a sudden spike. This may be carried in various forms including the abovementioned Brexit issue while the noise surrounding US-China trade continue to cloud insights into the issue.

Separately this morning saw Japan’s February core CPI arrive slightly below the consensus at 0.7% year-on-year, still a far stretch from the Bank of Japan’s target and shrugged off by the markets. USD/JPY (大口） trading little changed at $110.78. Look to further data updates amid an otherwise quiet session once again.

Yesterday: S&P 500 +1.09%; DJIA +0.84%; DAX -0.46%; FTSE +0.88%