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Trade cautiousness returns

Caution sets in for Asia markets awaiting the unfolding of the slew of geopolitical events this week, particularly trade worries coming back to the forefront to weigh on the region.

Wall Street broadly pulled back at the start of the week, showing the contempt ahead of the December 15 tariffs deadline for an interim deal to be established between US and China as we countdown. Once again, at the bare minimum, a delay of the tariffs in display of the sustained goodwill between the two sides would be one to keep the market churning into the new week and that is also the expected base case scenario. As far as the sectoral on the S&P 500 index had shown, Monday had seen only the consumers and real estate sectors managing to eke out some gains while most cyclicals were caught in decline. This corresponds with last week’s performance where the defensives generally outperformed the cyclicals, as investors positions for the busy week ahead.

Looking at prices on the broad S&P 500 index, barring any sudden negative turn in US-China trade developments, we could be seeing the US market sustaining on the positive performance going into year-end. Prices had once again attempted the 3150 resistance in the previous week, awaiting a breakout to renew the uptrend. Economic indicators including last week’s labour market updates had suggested the continued differential between the US and the rest of the world. Into the fresh week, both November’s inflation and retail sales readings are also likely to be supportive of the market, one to watch for breakout from resistance.

Asia markets have kicked started Tuesday on a dull note, unsurprising as the early optimism carrying the market at the start of the week hands the baton to a sense of cautiousness. This back and forth may well sustain through the week awaiting the untimed update on whether US-China tariffs will carry through at the end of the week. Separately, China’s inflation readings were seen this morning with the factory gate inflation turning up slightly better than expected at -1.4% YoY. Headline CPI had been the notable item, coming in at 4.5% YoY, the strongest reading seen since January 2012, limiting the room for monetary policy manoeuvres.

Thailand will be away on Tuesday, but there remains a series of items to watch including UK GDP readings and the German ZEW survey among others. GBP/USD is nevertheless expected to be largely politics attuned.

Yesterday: S&P 500 -0.32%; DJIA -0.38%; DAX -0.46%; FTSE -0.08%

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