Asia morning update: Markets in tight range

Thin markets were seen overnight with the US away for Independence Day holiday. Markets in Asia are expected to find near neutral changes at the start of Wednesday with concerns of escalation in North Korea and the anticipation of a packed Wednesday keeping prices on hold. 

Gold bars
Source: Bloomberg

Risk-off sentiment rises on North Korea threat

The broad sell-off within Asian markets had continued into the European session after North Korea sparked a new wave of concern over further escalation of their missile threats. Dragging markets out of their desensitised form towards these missile tests had been the latest Intercontinental Ballistic Missile. The successful test of the abovementioned firepower now suggests that US territories, such as Hawaii and Alaska, are within North Korea’s reach and adds to the factor of uncertainty towards the escalation of geopolitical tensions.

The trio of haven assets including US treasuries, gold and USD/JPY were seen responding to the lift in risk sentiment, albeit moderately. Specifically, gold prices were seen rebounding ahead of the key support at $1217, though the move had been slight. With items including the Fed minutes and US NFP ahead, items that could exert an influence on the US dollar, the market would be keeping watch on the price setup to see if it remain in the near-term down trend or exhibit a more decisive reversal for trade.

Spot gold

Asian markets

The confluence of jitters from concerns over North Korea and the anticipation for the events ahead could set most Asian markets on a near neutral start. Early movers in the region have so far been mostly weighed, the Nikkei 225 back to the synchronisation with the USD/JPY being down 0.3% when last checked at 8.30am Singapore time. One of the key markets to watch for today would be the Hang Seng after it clocked one of the worst dips in Asia on Tuesday, falling below the support at 25,479. Concerns would aggravate further should prices be brought back towards the 25,000 handle.

A lookback at Asian markets’ performance on Tuesday finds the MSCI Asia Pacific index dragged down by the IT sector on Tuesday while energy stocks remained the prominent gainer. This has been a direct opposite from their year-to-date movements with the IT and energy sectors being the best and worst performers respectively and certainly represents rotations within the market at the start of the month. With broadly positive expectations on Q2 earnings ahead, short for the energy sector on account of the pullback in crude prices, these moves may not become the trend.

Watch list

A packed Wednesday commences with the focus on the services sector performance reports in Asia, with the key China Caixin services PMI due at 9.45am Singapore time. The Asian region will also find the Bank of Thailand’s central bank meeting with the benchmark interest rate expected to be left unchanged.

Post Asian session would invite a series of key releases including the Federal Reserve Open Market Committee (FOMC) meeting minutes from June. Data including services PMI from Europe and factory and durable goods orders in the US will also be due.

Yesterday: S&P 500 +0.23% (Monday); DJIA +0.61% (Monday); DAX -0.31%; FTSE -0.27%

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