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Markets draw relief from China’s exports data

(ATF) Hong Kong: Asian markets closed off lows and European stocks are opening on a firm note after China reported solid export numbers but the mood remained edgy amid the flow of downbeat economic data and negative corporate news.

“Sentiment remains fragile, as markets may have priced in too much optimism to confront the reality ahead of us with current levels and valuations,” said Esty Dwek, head of macro strategy, investment solutions at Natixis Investment Management.

“We may not re-test the lows, but we continue to believe that plenty of risks remain as progress against the virus and stimulus battle bad economic and earnings releases and rising geopolitical tensions. We remain prudent as the transition to the ‘after corona’ is unlikely to be seamless and we are likely to see higher volatility at some point again.”

Japan’s Nikkei 225 added 0.28%, Hong Kong’s Hang Seng index benchmark fell 0.65%, Australia’s S&P ASX 200 eased 0.38% and Korea’s Kospi index ended just a tad lower. The MSCI Asia ex-Japan index edged down 0.28%.

Trading was thin due to holiday closures in Singapore, Malaysia, Indonesia and India.

China exports up 3.5%

China’s mainland’s stock index the CSI300 benchmark fell 0.29% after the world’s second biggest economy reported exports rose 3.5% year-on-year in April after contracting by 6.6% in March. ING Bank said this was driven by exports of medical supplies and 5G equipment, which is driven by government policy rather than by market demand.

“As some major cities begin to relax social distancing measures, China’s exports of medical supplies are likely to slow down abruptly,” ING said.

“Without exports of medical supplies, overall exports are likely to contract again on a year-on-year basis. This is because demand in major economies is weak and will continue to be so due to high levels of unemployment. Matching jobs could take more time than normal longer given the large numbers of unemployed workers.”

Credit markets recovered from the morning lows as the Asia IG index was half a basis point tighter at 118-1/2/120-1/2. Sovereign CDS were flat to a basis point wider.

US-China tensions

Investors are jittery about a resurgence in US-China tensions after US President Donald Trump said he was “watching closely” if Beijing would increase its US goods purchases under the trade deal while suggesting that China may or may not keep its end of the bargain.

US officials have suggested potentially disruptive proposals to reduce the US’s dependence on Chinese supply chains, particularly in the technology and healthcare sectors, while also hinting at a possibility of a new tariff flare-up.

“The threat of a trade war with the US is increasing. We believe that the exchange of words could go on for another three to six months,” ING Bank economists said in a note.

“Given the dire situation of the US economy and the fact that a trade war would hurt both economies, the possibility of the US imposing tariffs on Chinese goods, for now, is still low but we would not rule out this risk completely. If the US imposes renewed tariffs on China, China will retaliate.”

ATF China Bond 50 Index:

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Foreign Exchange: Unexpected China export growth helps yuan 

Asia Stocks

· Japan’s Nikkei 225 rose 0.28 %

· Australia’s S&P ASX 200 eased 0.38% 

· Hong Kong’s Hang Seng index dropped 0.65%

· China’s CSI300 fell 0.29%

· The MSCI Asia ex-Japan index dipped 0.28%.

Stock of the day 

Medical device maker MicroPort Scientific Corp rose as much as 6.3% in a weak market after it announced a joint venture for manufacturing medical robotic systems. 

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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