Asia morning update

Softer US markets

Pulling back from the record high, the S&P 500 index saw a day of moderate losses, spread across seven of the eleven sectors on the index. The set of leads mostly worked against the rally in Monday’s session, ranging from concerns on the tax end, sparked by a fresh report from Bloomberg citing potential ‘phased-in tax cut’, to the latest Russia probe indicting Trump’s aides. The picking up of risk sentiment had been apparent as US yields slipped and the US dollar likewise reversed some of the recent gains. Month end effects and the broadly in-line core PCE figures played a part here as well.

Having said the above, we do find the US markets still broadly supported with both defensives and the IT sector holding their grounds in the session. The latter is still riding on the outperformance in earnings from the previous week, and with the slew of IT companies’ earnings, including Facebook Inc. and Apple Inc. due, investors are unlikely to alter their position too significantly ahead. Additionally, the energy sector remain under the positive influence from higher crude prices and this would likely be a trend that carries through to Tuesday’s Asia market.

Headwinds for Asia

The lift in risk sentiment and uncertainty over tax reform plans in the US will likely be the biggest headwind for Asian markets in the day. While it may be difficult to tell the extent to which the tax reform anticipation had been priced into markets, and likewise trickled over to Asian markets, the pullback is bound to hurt investors’ confidence in the day. Eyes will likely be set ahead to the tax bill, the ‘game plan’, due Wednesday from House Republicans.

Notably, China’s October official PMI numbers arrived this morning offering little support for markets. The manufacturing PMI figure at 51.6 missed market expectations and slowed down September’s strong 52.4 print, with environmental regulations in view. It had nevertheless remained in expansionary territory and above the 51.5 average for the first eight months of the year. The data itself may not be a strong catalyst for Asian markets nor China itself with the latter still having its own jitters to overcome.

In the meantime, we certainly have a packed day ahead with the Bank of Japan (BoJ) meeting and Fed FOMC commencement. Expect no change in monetary policy, though the BoJ’s inflation expectations may be revised a touch lower to signal the likelihood we could see an extended duration to the current ultra-loose monetary policy. Data including the Eurozone’s inflation and Q3 GDP, and also the conference board consumer confidence index and Chicago PMI in the US may be of more interest.

Yesterday: S&P 500 -0.32%; DJIA -0.36%; DAX +0.09%; FTSE -0.23%