Hong Kong: Asian markets are watchful on Friday after data from the world’s second-largest economy showed signs of recovery even as US-China tensions continue to simmer.

“Consumption has been understandably slow to recover after China reopened in April. While today’s numbers show continued contraction in Chinese retail sales, we have seen a sequential improvement in consumption since March, reflecting more normalized economic activity despite holiday outings remaining muted in April,” Binay Chandgothia, managing director at Principal Global Investors, said.

“E-commerce sales have continued to defy the slump, highlighting the continued ‘internetization’ of the Chinese economy. The modest rise in this sector signals a gradual return of the Chinese consumer, aided by the resumption of broad economic activity.”

He said he expected China’s GDP to expand in the second half of the year, assuming a global containment of the virus. He also warned the US-China relationship, had the potential to significantly impact the speed of the market recovery.

Overnight, US President Donald Trump slammed China over its handling of the coronavirus outbreak, saying he has no interest in speaking to President Xi Jinping at the moment.

“We could cut off the whole relationship. You’d save $500 billion if you cut off the whole relationship,” he suggested in an interview with Fox News.

ING Bank said this aggressive rhetoric from the Trump administration against China is gaining in volume and would pressure regional currencies, hurting the current account deficit countries of the region.

“It makes it much harder for them to support their economies with monetary easing and consigns them to a dimmer economic future,” said Robert Carnell, ING Regional Head of Research, Asia-Pacific. “It is bad news for the small open economies too. This doesn’t leave a lot. It’s also generally a risk-off environment, so not just the S&P500, but stocks around the region are likely to come under pressure again if trade tensions escalate.”

Japan’s Nikkei 225 edged down 0.32%, Australia’s S&P ASX 200 is up 0.79%, Hong Kong’s Hang Seng benchmark is off 0.3% and China’s CSI 300 share index is 0.13% lower.

Overnight on Thursday, the Dow Jones Industrial Average added 1.62%, while the S&P 500 climbed 1.15%, and the Nasdaq Composite rose 0.91% as investors looked past worse than expected new jobless claims (2.98 million vs 2.5 million) on hopes of more stimulus measures in the world’s largest economy.

Credit markets are marginally positive with the Asia IG index trading a basis point tighter at 118/120 while sovereign CDS moved in by 1-2 basis points. Chinese developer Zhenro Properties priced a $200-million bond offering at a lower yield than initially indicated after receiving over $1.4 billion in orders.

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