Asia equities move higher on US/China hopes

Wall Street edged lower overnight as investors continued reducing risk into the US inflation data. The S&P 500 finished 0.18% lower, with the Nasdaq losing just 0.09%, and the Dow Jones falling 0.44% as inflation fears ebbed. Asia has turned direction, though, after a constructive phone call today between US and China officials, with futures on all three indices rising just over 0.10%.

US President Biden is off to the UK to attend the G-7 leaders meeting, after sending out mixed messages regarding China. On the one hand, it is clear from various comments that the President intends to maintain a hard line on China and will use the meeting to garner support for his stance. On the other, the President cancelled the TikTok and WeChat bans overnight. Investors chose to focus on the phone call between US and China officials. As a result, Asian equities have edged up today, and the region appears to be focussing on the former and not the latter.

Any good news on US/China relations is always positive as far as Asia is concerned, having a massive beta to that trade. Asian equities markets have duly followed the US futures higher for the most part. The Nikkei 225 is 0.25% higher, with the Kospi climbing 0.45%. China’s Shanghai Composite has risen by 0.70%, and the CSI 300 has surged 1.0% higher. Hong Kong has risen 0.20%.

Across the region, Singapore has climbed 0.50%, with Kuala Lumpur 0.15% higher and Jakarta unchanged. Taipei, meanwhile, is up by 0.50%, with Bangkok climbing by 0.60%. In Australia, the ASX 200 and All Ordinaries have risen by 0.30%.

If nothing else, the price action this morning highlights how important the trajectory of US-China relations is to the rest of the region. I expect gains to be limited from here, though, barring a headline surprise, as equity markets overall remain cautious ahead of the US data tonight.