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Asia market morning update - temporary relief?

Relief prompted gains are expected midweek with President Trump’s optimistic comments triggering the gains. This is as we watch key releases out of both China and the US with any disappointments likely to be made more pronounced.

US markets downtrend intact

He who brought the market down with his tweets had helped it higher overnight. President Donald Trump’s latest tweets stating that a deal is still possible with China ‘when the time is right’ had no doubt been the trigger for Tuesday’s recovery on Wall Street. This had also been a continuation from the positive tone held during the White House dinner on Monday and a stark contrast from the rhetoric that had ignited the latest round of trade tensions. Both the Dow and the S&P 500 index were seen with gains of more than 0.8% reflecting this lift in sentiment while bargain hunting had likely contributed as well.

That said, between the fact that both US and China are still talking and that the two Presidents are still expected to meet at the June G20 meeting, there is an apparent lack of progress noted in any aspects of trade negotiations. This could mean that the sentiment-driven rebound in markets may just be a temporary relief. As it is, the US remain in preparation for further tariffs for implementation.

More importantly, from a price perspective the downtrend that had been formed since prices started pulling back from the peak on the likes of the comprehensive S&P 500 index, as shown in the chart below, still remains intact. Likewise with the Dow, the lack of a reversal in trend here would mean that it would not be the time to head back into the market yet. To attempt to figure out when the mercurial President could strike next on twitter or otherwise would be next to impossible, perhaps rendering a sense of caution here the wiser option.

Euro weakness

Meanwhile on FX, while the CNH/JPY trade remains in waiting for trigger, the likes of the EUR/USD certainly kept the downtrend going after having reversed upon meeting the channel resistance. Tuesday’s industrial production release from the Eurozone had confirmed the slowdown with the 0.3% month-on-month (MoM) decline. Meanwhile amid the backdrop of trade tensions, May’s German ZEW survey had also reflected poorer sentiment. The attention will be up ahead to the data barrage due Wednesday from the eurozone including Germany’s first quarter growth. Q4 2018 precariously escaped a technical recession placing the emphasis on the slight improvement expected for Q1. Look to the reading here alongside US data such as April’s industrial production and retail sales where mixed views exist.

Asia open

In light of the improvement in sentiment, brief as it may potentially be, Asia markets are set for moderate gains in the session. Early movers in the region including the ASX 200 and KOSPI had seen gains of between 0.2% and 0.4% when last checked. Expect the rest of the region to fall in line with these gains in the morning though attention will be attuned towards the data dump out of China in the morning. April’s industrial production, retail sales and fixed asset investments are lined for release at 10am Singapore time. The consensus had been for a softer reading from the former two and a disappointment here will likely have a more pronounced effect amid the heightened tensions between US and China at present.

Yesterday: S&P 500 +0.80%; DJIA +0.82%; DAX +0.97%; FTSE +1.09%

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