Asia Markets wrap
Asia Markets wrap

Hong Kong: Financial markets are subdued monitoring progress in the US stimulus package proposal and trade negotiations between the world’s two biggest economies. Investors have turned risk-averse, giving a boost to safe havens gold and US Treasuries.

Gold hit an all-time high of $2,039 per ounce and this rally has supported other metals too with base metals and bulk materials getting a lift as well.

“Gold has rallied over falling real rates. Continued fiscal spending as governments are mending the damage from Covid-19, backstopped by central banks means that interest rates will remain low, at the same time as the economy reflates. Financial repression may be with us for a while, so we reinforce our $3,000/oz forecast,” said Michael Widmer, a commodity strategist at BofA Securities. He predicted gains for base metals copper, aluminium and zinc.

Although US Democrats reported they were making progress in negotiating a coronavirus relief package with the Republicans, the two sides are close to a consensus only in a few areas. The Senate is scheduled to go to recess on Friday, August 7, but it is likely the recess will be delayed to complete work on the bill.

Trade tensions may also return ahead of US-China talks scheduled on 15 August to review China’s compliance with the phase-1 trade deal and this is also preventing investors from adding risk.

Vice Premier Liu He and US Trade Representative Lighthizer will have their biannual review of the phase-1 deal via video conference on Friday week, according to the Wall Street Journal.

There is much work to be done in renegotiating the deal and this will keep markets on the edge.

“The phase-one deal requires China to purchase an additional $200 billion of US products on top of 2017 levels over two years, of which a $77 billion increase is expected this year. Even before the ink was dry, these requirements seemed unlikely to be met. However, the pandemic has made this a near impossibility. Energy purchases from the US have met just 5% of the yearly target as of end-June,” Everbright’s Sun Hun Kai said in a note.

China chugs along

Earlier in the day, the Caixin China General Services Business Activity Index (headline services PMI) came in at 54.1 in July, lower than 58.4 in June but still in expansionary territory.

“The Caixin China General Services Business Activity Index came in at 54.1 in July, down from a 10-year high of 58.4 the previous month,” said Wang Zhe, a Senior Economist at Caixin Insight Group. “It remained in expansionary territory, pointing to a continued rapid recovery of the services sector as the domestic Covid-19 epidemic has largely been brought under control.”

Still, with the global coronavirus infection count now over 18.5 million and the death count exceeding 700,000, the hit to economies which have reopened from subsequent waves remain a concern.

Also released during the day, the Markit Hong Kong PMI declined to 44.5 in July from 49.6 in June on a new wave of coronavirus infections and related tightening of virus control measures.

“The recent surge of coronavirus cases prompted policymakers to tighten virus control measures again from mid-July, which weighed on activity growth,” Goldman Sachs analysts said in a note.

“New infections have remained high in recent days and economic activity in August could weaken further from July,” they added. Goldman recently downgraded its forecast for Hong Kong’s Q3 GDP growth, to -5.2% year-on-year from -2.6% year-on-year, to reflect the renewed downward pressures on activity growth from the new outbreak and tightening of virus-containing measures.  

Japan’s Nikkei index fell 0.23%, Australia’s S&P ASX 200 benchmark retreated 0.6% and China’s CSI 300 ended flat. But Hong Kong’s Hang Seng benchmark outperformed. It added 0.62% amid expectations of more tech listings from China.

Asian credit markets were firm with the Asia IG index moving in 2 bps to 68/69.

Primary markets are busy with Korea ExpresswayCentral China, and Zhongtai Financial announcing bond plans.

ATF China Bond 50 Index: Financials weigh on bond market as investors turn to bank stocks

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Asia Stocks

# Japan’s Nikkei 225 eased 0.23%

# Australia’s S&P ASX 200 retreated 0.6% 

# Hong Kong’s Hang Seng index added 0.62%

# China’s CSI300 ended flat

# The MSCI Asia Pacific index advanced 0.22%.

Stock of the day 

Semiconductor Manufacturing International Corp rose as much as 8.2% in heavy volumes after its founder told a livestream forum he was “optimistic” China could catch up with the United States in the next generation of semiconductors.

This report appeared first on Asia Times Fiinancial.