ASIA STOCKS: Little Spill Over From Canada Tariff Threat, China & HK Outperform
Fallout from Trump's 35% tariff threat on Canada has been negligible so far in Asia Pac markets. Markets seemingly happy to take increased tariff risks in its stride. Earlier reports (from an NBC interview) with US President Trump indicated a baseline reciprocal tariff in the 15-20% region (so higher than the paused 10% amount) US equity futures fell as these headlines crossed, but are up from lows. Eminis were last down by around 0.20% (we were off over 0.50% at one stage). In the region continued gains for Hong Kong and China markets have been the standout.
- There look to be a number of factors driving the China/HK equity market rebound. Potential US-China talks cited as one positive, with US Secretary of State Rubio to meet with China's Wang Yi in Malaysia today cited as one factor (this could lead to a Trump-XI meeting later this year). Attractive valuations for China stocks relative to HK could also be in play. Goldman Sachs also raised Hong Kong stocks to market weight, and raised the outlook for the MSCI Asia Pac ex Japan index (via BBG).
- At the break, HK's HSI is up 1.9%, while the CSI 300 is up +1.1%, putting the index above 4050, which is fresh highs back to Dec last year.
- Elsewhere, Japan markets are mixed, the Topix +0.60%, but NKY 225 down slightly. The recent rally in South Korean and Taiwan stocks has slowed, but these bourses are still in the green at this stage.
- In South East Asia, the standout is Thailand markets, up over 1%, but after being out yesterday this could reflect some catch up.
- Other markets in the region are tracking higher, except for India.
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GOLD: Firmer, But Tracking Within Recent Ranges
Gold has ticked higher in the first part of Wednesday trade, last near $3341-42/oz, up around 0.50% versus end Tuesday levels in the US. This comes despite an uptick in the USD, with the BBDXY index around 0.1% stronger so far today. Focus has been firmly on US-China trade talks, with headlines from London crossing earlier. The market reaction has been fairly muted, with the main outcome being agreement to move forward with what was agreed at the Geneva talks in May (although both US and China leaders need to sign off on implementation).
- US equity futures have edged down, with the market perhaps looking for something more around broader tariff relief. This may be helping gold at the margins, although most regional equity markets in Asia Pac are firmer in Tuesday trade.
- For gold techs, the bullish theme remains intact with moving-average studies staying in a bull mode. Initial resistance is at $3403.5, 5 June high with the bull trigger at $3500.1. Initial support is at $3242.4, 50-day EMA.
NZD: Asia Wrap - Drifts Lower, Holds Above 0.6000
The NZD/USD had a range of 0.6025 - 0.6062 in the Asia-Pac session, going into the London open trading around 0.6035. The NZD has drifted lower for most of our session as US stocks fail to push on after positive headlines on the conclusion of the US-China talks. The NZD has looked to be building for an extension higher, CPI tonight will determine if this can come to pass.
- Bloomberg - “New Zealand's annual net immigration fell to 21,317 in April, a two-and-a-half year low, which could slow the country's economic recovery and lead to more interest-rate cuts.”
- “The decline in net immigration is partly driven by New Zealand citizens leaving the country to seek better incomes, which could dampen demand and prompt the Reserve Bank to provide policy stimulus.”
- The NZD continues to find demand back towards the 0.6000 area as dips remain well supported, bulls will be hoping this holds to have another crack at extending higher.
- The support back towards 0.5850 has held very well, and while this continues to hold expect buyers to be around on dips. A clear break above 0.6050/0.6100 could provide the spark for the next leg higher. The market remains short and above here they could be forced to pare back.
- CFTC Data showed Asset managers maintaining their shorts, while the leverage actually added to their shorts last week.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6100(NZD353m), 0.6145(NZD348m). Upcoming Close Strikes : none
AUD/NZD range for the session has been 1.0769 - 1.0793, currently trading 1.0790. A top looks in place now just above 1.0900, the cross topped out on Monday towards the 1.0800/25 sell area, the first target looks to be around 1.0650.
Fig 1: NZD/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
CHINA: Bond Futures Up Modestly
- China's bond futures all rose today as the Central Bank withdrew liquidity during the OMO
- The 10YR future is up +0.04 to 109.025 and remains above all major moving averages. The nearest the 20-day EMA is at 108.83
- The 2YR future is up +0.01 at 102.44 and sits just above the 20-day EMA of 102.43
- The CGB10YR is marginally better today at 1.68%
