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Investors cautious on Trump’s China sanctions talk

(ATF) Jitters about US-China tensions resurfacing made markets nervous as US President Donald Trump said he will unveil sanctions over Beijing’s move to curtail Hong Kong’s autonomy. That capped a rally triggered by hope the world’s biggest economy is getting back on track after an unexpected rise in US new home sales in April. 

Hong Kong is back in investor focus as protest rallies are planned during the day against China’s proposed new national security law and a bill that would criminalise disrespect toward the Chinese national anthem.

The rising tensions offset the optimism from a Reuters report that Japan is planning a fresh stimulus package worth $1.1 trillion on top of a $1.1 trillion package already rolled out last month.

Hong Kong’s Hang Seng index dipped 0.31%, the CSI 300 was down 0.29% and Japan’s Nikkei 225 benchmark was flat.

Credit markets remain firm and the primary market active with the Asia IG index tighter by 2 basis points at 103/104 bps and sovereign CDS moving in by 2-3 basis points. Vietnam was the outperformer, shrinking by 10 bps to 210/240.

Overnight the Dow Jones Industrial Average rose 2.17%, the S&P 500 .SPX advanced 1.23%, and the Nasdaq Composite edged up 0.17%, all off highs as Trump’s warning cooled sentiment.

“Neither did the Dow and S&P500 end the session above 25,000 and 3,000 respectively,” DBS analysts said in a note.

‘Seeing the glass half-full’

“Still, investors have started to see the glass as half-full on the easing of lockdown restrictions across more countries. This was evident in the rally of airline stocks. Fears of a second wave of infections have been balanced by the widening search for a vaccine. US-China tensions have not gone away but for now, President Trump’s bark is considered worse than his bite.”

Meanwhile, data from China showed profits at industrial firms fell in April but the pace of the decline was slower at 4.3% year-on-year versus 34.9% in March. Some of the improvement was due to higher investment income, the National Bureau of Statistics said.

“It should be noted that although the profit situation of industrial enterprises above the designated size improved significantly in April, the cumulative profits of industrial enterprises are still greatly reduced due to multiple factors such as the market demand has not fully recovered, the price of industrial products has continued to fall, and the cost pressure is still large,” Zhu Hong, senior statistician at the National Bureau of Statistic’s Department of Industry, said.

“The profit situation is not optimistic. In the next stage, we must continue to thoroughly implement the decision-making and deployment of the Party Central Committee and the State Council,” he said.

Financial markets are watching the ongoing meeting of China’s parliament, the National People’s Congress, closely to see if there are any further reforms in the financial services sector as the focus remains on job creation.

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai


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