Asia market update - temporary relief for trade tensions

The twist and turns in US-China trade holds their place driving the market as we approach a day watching updates on monetary policy from the likes of the Fed.

Source: Bloomberg

The latest on trade

Positive developments in the form of a 90-day relief for certain US companies supplying Huawei was seen aiding sentiment for a market holding a binomial view towards trade tensions at present. To some extent, the move on Tuesday had been viewed as a dialling down of tensions following the dent it had carved on semiconductors and the broad tech sector alike.

That said, the reality is that a resumption of the limitations after 90 days would most certainly still affect the global supply chain and hit hard at a touchy issue for China to potentially induce further retaliation. As it is, Chinese President Xi Jinping had been on the wires signalling that China is ready for a long war though without explicitly mentioning the US, reflecting the resolve China seems to be holding at present in this trade conflict. While the matter had yet to be confirmed by officials, New York Times’ reported that the Trump administration is also considering the blacklisting of a Chinese video surveillance runs the risk of the dial shooting back towards a risk-off atmosphere, one to watch.

Asia markets had mostly commenced the session mixed, having already edged higher on Tuesday from the relief on Huawei. While Malaysia would be away this Wednesday, the rest of the region would be looking to a busy day ahead in terms of data and monetary policy updates to guide the market action.

King dollar reigns

On FX, there is perhaps little question that King dollar continues to reign amid the backdrop of trade tensions and dovish central banks around the world. The US dollar index was seen trading back at a near 2-year high around 98.0 levels from Tuesday. Measured against six major currencies, the US dollar index’s strength came largely from the likes of the Aussie weakness as signs had been clear from both Tuesday’s Reserve Bank of Australia (RBA) May minutes and RBA Lowe’s comments that the officials would ‘consider the case for lower interest rates’ at the next central bank meeting inducing the market to price in that expectations. EUR/USD and the GBP/USD meanwhile also remain in the doldrums given their respective concerns. Even USD/JPY made some headway at regaining some grounds from the abovementioned relief in trade tensions.

The watch for the day ahead will be with the likes of the May Federal Open Market Committee (FOMC) minutes and comments from European Central Bank (ECB) Draghi and other Fed speakers. The bias here remains one that is bullish the USD seeing Fed speakers sticking to the playbook on neutral rates outlook thus far while the market hunt for hints of further stimulus from the ECB chief. EUR/USD trading near the middle of its downtrend channel, one to watch for a drag.

US Dollar Basket

Source: IG Charts

Yesterday: S&P 500 +0.85%; DJIA +0.77%; DAX +0.85%; FTSE +0.25%


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