Asia morning update - watching trade

Asia markets are expected to tread water as US-China talks continue in Beijing in what could be a decisive round for trade relations. Meanwhile, the focus goes to releases including China’s trade numbers for the Asia region.

The momentum sustained on Wall Street with gains seen once again supported by the positive sentiment still swivelling that of a government shutdown aversion and the trade hopes. The Dow and the S&P 500 Index both keeping to a moderate green at 0.30% and 0.46% respectively. Gains had notably been led by the energy sector on the S&P 500 as crude prices edged higher despite the 3.6 million build up in crude inventories according to the US department of energy. The affirmation from Saudi Arabia’s energy minister circling the fact that the country continues to reduce output by more than the agreed amount with OPEC and co. and trade hopes appear to be keeping the crude market going. Brent was last seen trading above $63.70 after printing a near 3-month high. Watch for corresponding gains into the Asia session.

It had helped as well with the lack of inflation pressure seen in developed markets overnight keeping central banks, particularly the Federal Reserve, at bay. US January’s core CPI arrived at a steady 0.2% month-on-month, in line with expectations. Year-on-year numbers seen firm at 2.2% with the drag from oil prices keeping a lid on inflation figures, an expectation shared by the market and central bankers alike. This reading may well allow the Fed to retain their current wait-and-see attitude with regards to monetary policy. Across the Atlantic, UK inflation likewise kept tamed with disappointments printed.

One would note that the greenback strength had however been renewed overnight as prices charged back above 97.0 on the US dollar index. An array of factors including the government shutdown aversion and disappointment in December’s eurozone inflation appear to be behind this wave. EUR/USD correspondingly experiencing the slump, taking prices below the $1.13 handle with further downside risks as we await the preliminary reading of the eurozone Q4 GDP. It does appear that the bears are fully charged to take prices far lower from here, so do watch for the trigger in the session today.

For Asia markets, the exhaustion of the positive sentiment that powered US markets overnight looks to invite the region to tread water in the session. Certainly, there had been words of affirmation from President Donald Trump on talks with China going ‘very well’ but the wait is on for the conclusion from the talks this week that could be more telling on where the two countries will take things next. Watch for China’s trade data in the mean time for whether a renewal of trade concerns may be the case. As far as regional markets have suggested, there is a sense of cautiousness ahead of the release where exports are due to retain its year-on-year decline.

Yesterday: S&P 500 +0.30%; DJIA +0.46%; DAX +0.37%; FTSE +0.81%

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