Asia Markets wrap

Asian markets are bracing for retaliatory action by China after it warned it would “definitely respond to the US’s unreasonable actions” referring to the US order to close the Chinese consulate in Houston.

China’s Foreign Ministry Spokesman Wang Wenbin said the US move had caused “serious damage to Sino-US relations” and “China will take necessary measures to safeguard its legitimate rights and interests.”

Sentiment has also been hurt by an unexpected rise in US jobless claims, the first uptick since March even as US politicians debate a further stimulus package to support the world’s largest economy. Initial unemployment claims increased to 1.42 million in the week ended July 18, up 109,000 from the previous week. This was sharply worse than 1.3 million expected.

US Secretary of State Michael Pompeo criticised China in his speech and this was certainly going to escalate the tensions and sideline investors.

Asian markets fall

Japan’s Nikkei 225 benchmark slipped 0.58%, Australia’s S&P ASX 200 slid 1.1% and the Hang Seng index is 0.87% lower. Mainland China’s CSI300 index has tumbled 1.34%.

The weakness in the dollar continues with the greenback extending its slide this week as data raised doubts about the speed of recovery. The dollar index, is near a two-year low against a basket of currencies. It is currently at 94.65.

The weakness of the dollar is unlikely to result in a crash for the world’s reserve currency and analysts say these episodes are quite positive for growth.

“The inverse link between the dollar and global growth has existed for most of the era of free-floating exchange rates – a bout of dollar weakness will be a boon for world exports at a time when worries about trade wars and de-globalisation abound,” Gaurav Saroliya, director of Macro Strategy at Oxford Economics, said.

Wall Street also down

Markets are also tracking Wall Street’s losses overnight as the Dow Jones Industrial Average fell 1.31%, the S&P 500 retreated 1.23% and the Nasdaq Composite tumbled 2.29%.

Credit markets are also trading weaker with the Asia IG index one basis point wider at 75/76 bps and sovereign CDS moving out by 1-4 basis points.

Investor focus will be on PMI numbers during the day from Europe and the US.

“Flash survey data will be eagerly scrutinised after June PMI data signalled moves towards a recovery across the US private sector, with new business in the manufacturing and services sector broadly stabilising following marked contractions in April and May,” By Siân Jones, an economist with IHS Markit in London, said.

He said although business confidence improved in June among both service providers and manufacturers, anecdotal evidence largely suggested positive sentiment was derived from hopes of an end, or further relaxation, of lockdown measures.

“Recent news of the pausing of moves towards loosening restrictions and, in some cases, the reversal of measures, could stall progress towards a return to pre-pandemic business activity levels.”

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This report appeared first on Asia Times Financial.

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