Asia market morning update - trade front and centre

The lack of resolution in the latest US-China trade talks coupled with continued provocative tweets from President Trump provides no relief for risk sentiment as we look to another weak start to the week for Asia markets.

Source: Bloomberg

Evasion to safety

Another week, another tweet to drum up trade tensions. President Donald Trump’s latest taunts to China was seen over the weekend against the backdrop of a US-China trade negotiation stalemate. The President had warned greater backlash on China in his second term if they do not ‘act now’ while China had noted that the US must remove all tariffs before a deal can be struck. The rhetoric coming through from both sides in the previous week, as seen, points to the deterioration in trade talks and the likelihood that US-China trade tensions will continue to dominate headlines for the near-term.

Against such a backdrop of uncertainty and trade-invoked volatility, the market can be seen taking a clear course of evasion to safety. Expect this trend to sustain into this week as the market continue to digest the impact of the newly implemented tariffs while further retaliation from China will not be ruled out.

Asia open

The worry knows no end at the start of the week for Asia markets. Look to regional markets to fall back in line, with the way US futures are trending downward at the moment. As it is, both the ASX 200 and the Nikkei 225 had been caught in red at -0.3% and -0.8% respectively. Thin market trade amid the absence of Hong Kong and the Philippines is also expected in this light data day to start the week.

Level checks

S&P 500: The S&P 500 index slipped 2.18% in the previous week, the worst weekly drop clocked since the week ending 21 December 2018. With the decline, prices had given up the 50-day moving average and engaged in this downtrend that may well continue amid the lack of resolution in US-China trade negotiations. Next support comes in at the 2800 handle around the 76.4% retracement level and 100-day moving average. Look to whether prices would challenge the support this week.

XLK ETF: The trade-sensitive technology sector which had led the rally since the start of the year had clearly been one showing signs of reversal in the past week as US-China trade conflict escalated. Prices slipped past the $76.03 barrier and can now be seen testing the 50-day moving average. A break below here could invite more investors to take profit, one to watch.

STI: Looking at the local market, the pullback had been rather apparent as seen in the charts below. Prices are now nearing the strong support at 3177.9, so look to whether a break here will occur this week that would open up room on the downside towards the 3000 handle.

USD/JPY: The strengthening of the yen amid the safe haven demand in the previous week had been rather spectacular, hitting the USD/JPY pair down to the $109.60 support. As with the weakening of offshore yuan with the trade-invoked jitters, JPY may still have further room to go. In fact, besides USD/JPY, look to the likes of CNH/JPY to short given the current trade tension theme.

Spot gold: As with JPY, gold prices can also be seen gaining in the past week. With the safe haven search, spot gold prices had edged to the top end of the recent downtrend poised for breakout. A surge here and above the $1300 will likely see to more bids coming through. As far as the IG client sentiment indicator is suggesting, the direction is bullish.

Friday: S&P 500 +0.37%; DJIA +0.44%; DAX +0.72%; FTSE -0.06%


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