Geopolitics torpedoes early equity rally
The US major equity indexes all made new record highs on Friday, but that euphoria has not flowed through to Asian markets this morning. After an initial rise on US stimulus hopes, early rallies quickly faded on news that the Trump administration is preparing new sanctions on Hong Kong and mainland China officials. This time, the culprit is Beijing’s disqualification of elected legislators in Hong Kong, proving that geopolitics will not go away as the Trump administration’s end draws closer.
Futures on the S&P 500, Nasdaq, and Dow Jones have eased by 0.15% this morning. The Nikkei 225 has fallen 0.50%, with the Kospi down 0.20%. In China, the Shanghai Composite has declined 0.50%, with the CSI 300 down 0.40%. The Hang Seng has borne the brunt of the US sanction news, falling 1.80%.
In ASEAN, Singapore has fallen 0.30%, with Kuala Lumpur down 0.10% but Jakarta is rising 1.15% after the central bank governor said policy normalisation was a long way off. The US-centric Taipei and Manila are also bucking the trend, rising 0.50% and 0.60% respectively. Australia has pared initial gains but still remains in positive territory. The All Ordinaries has risen 0.40% and the ASX 200 has risen 0.30%.
I expect the negativity in the major Asian markets to be short-lived. A new US fiscal stimulus package trumps short-term headlines, and Asia should recoup its losses with European markets set to rise later today. A disappointing US NFP report appears to have nudged lawmakers on Capitol Hill towards a bi-partisan fiscal stimulus agreement. The USD908 billion package represents a compromise – it is well below the USD2.5 trillion that the Democrats had hoped for, but appears to be palatable to cautious Senate Republicans. A package to be voted on could be finalized, perhaps soon as today.
Brexit headline risk, as the negotiations go down to the wire, may mute the gains though on the UK and European markets.