Confrontation trade policies hit markets

Early expectations for the temporary relief on Wall Street to spread to Asia markets into Friday had once again been derailed with more confrontation trade policies out of the US, one to throw markets into a risk-off mode again.

Source: Bloomberg

Rude awakening for Asia markets

It had perhaps been somewhat of a rude awakening for Asia markets this morning with President Donald Trump taking trade tensions up a notch with Mexico. Announcing through twitter, the President mentioned that 5% tariffs on Mexican goods could be imposed effectively on June 10 and this can be raised to as high as 25% on October 1. The matter sparks concern on multiple fronts. Over and above the confusing signal this sends to the market as the White House prepares the USMCA trade deal approval process, this also adds concerns that the US’ more confrontational policies could see to greater risks for the US-China trade relations and global growth. There certainly is no break for risk sentiment going into the end of the week.

US futures can be seen sliding this morning following the announcement, looking to erase the gains from Thursday. While the sovereign bond rally appears to have taken a brief breather yesterday, the evasion to safety directive this morning can be seen sending yields on the decline once again. Alongside the miss seen this morning in China’s manufacturing PMI, look to the likes of USD/JPY to chart further downward trajectory going into Friday. Prices can be seen coming towards the $109 level once again just as the yield differentials continue to narrow, watch for a test here.

Source: IG Charts

China manufacturing PMI disappoints

It is a stabilization-turned-synchronized decline situation across Asia this morning with both President Donald Trump’s announcement and China’s manufacturing PMI let down, ones to trigger a risk-off atmosphere once again.

Arriving at 49.4, the May NBS manufacturing PMI had indeed realised the likelihood for disappointment against the 49.9 market consensus. This marks a return into the contraction territory for the sector while the services sector held up at 54.3, unchanged from April’s reading. Against the backdrop of the heightening trade tensions and tariffs implementation in the month of May, this may just be the start for the weaker performance to show as we anticipate the likes of industrial production and trade data later in the month.

For the rest of the session ahead, it will be a busy data day with items out of the Eurozone and the US to watch. The Fed’s preferred inflation gauge, the core PCE reading will be updated for April during US hours, though the current trade issues may overshadow into Friday.

Yesterday: S&P 500 +0.21%; DJIA +0.17%; DAX +0.54%; FTSE +0.46%


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