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Asia market morning update - mixed commencement for asia markets

A mixed start to the session is expected for Asia markets between the swivelling sentiment surrounding trade and the bout of disappointing data released from both China and the US on Wednesday.

US-China trade tensions up a notch

Wall Street clocked another positive session on Wednesday, once again with trade sentiment driving the moves. Alongside suggestions that US negotiations could return to Beijing for talks, President Donald Trump’s intention to delay auto tariffs assisted with diminishing trade concerns on both the EU and Japan’s ends. Automakers, across the likes of Ford to BMW, broadly picked up following the development.

That said, it might be too soon to say that the Trump administration is adopting a softer stance following the series of optimistic comments on China and the auto tariffs delay. Headlines suggesting that President Donald Trump had turned his attention to Chinese telecoms with the latest move to limit telecom sales including those from Huawei Technologies Co. ratchets up the tensions once again. While matters surrounding Chinese telecoms Huawei and ZTE Corp. had long been chips tossed around in the US-China battle, the implementation of the latest restrictions during a new round of tariffs escalation would be one to weigh on the situation.

On prices, US futures can be seen slipping slightly in reaction this morning. The indication from our IG prices had just shown that the reversal had hit prices back into the ongoing downtrend after attempting a breakout with the gains on Wednesday. Whether China will take this matter to hand still remains to be seen but the odds are a reaction could arrive as with past episodes. This may further lead to a drag on global equity markets keeping the bearish bias going.

US and China’s data disappointment

Separately, on economic performance, both the Chinese data dump and US readings’ disappointments on Wednesday had offered little solace for markets amid the trade conflict between US and China. April’s industrial production and retail sales had missed consensus across the board whether we are talking about the US or China.

That said, given that the numbers arrived after the strong readings from March, this had helped to reduce the drag from the misses with the market rendering the April weakness as seasonal effect. The involvement of the control group for US retail sales, which feeds into the GDP accounting, at a flat month-on-month (MoM) result against the 0.4% consensus however marks a weak first Q2 reading to note. As far as the Atlanta Fed’s GDP Nowcast suggests for Q2 growth, a significant drop of the forecast to 1.1% was noted. US treasury yields likewise pulled back to a 7-week low against the current backdrop, one to watch.

Asia open

The ratcheting up of the tensions with China from the Trump administration’s latest telecoms limitations look set to drag most of the Asia region into moderate red. Whether China’s reaction would arrive during the session remains to be seen, but it certainly appears to have sent regional markets into a more careful state. Watch the releases including the Australia’s employment data and China’s house price index this morning ahead of Bank Indonesia’s (BI) decision for any USD/IDR moves. BI is not expected to shift rates this round but could open the doors for a cut to come later in the year, one to watch for dovishness.

Yesterday: S&P 500 +0.58%; DJIA +0.45%; DAX +0.90%; FTSE +0.76%

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