Asian markets mostly rose yesterday but gains were limited, with investors treading uneasily as they await the conclusion of a crucial Federal Reserve meeting this week.
While geopolitical tensions and the China-US trade war continue to make waves, the key focus for now is what the US central bank plans to do with monetary policy as the tariff stand-off shows signs of impacting the world’s top economy.
The latest weak data saw manufacturing activity in New York state plunge into contraction this month and hit its lowest level since late 2016, reflecting steep drop-offs in new orders, backlogs and employment.
Observers pointed out the reading coincided with US President Donald Trump’s threat to impose tariffs on Mexico over immigration policy, which he has since withdrawn, but added that the reaction suggests how manufacturers would react to further action against China.
There has been increasing talk that the Fed will cut borrowing costs for the first time in more than a decade, although the expectation is for a move later on.
The shift to a more dovish tone from the bank has been a key support for global markets in the face of the trade uncertainty.
Still, Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management, warned: “If market expectations for cuts are not met, we could see a jump in market volatility. Unless US-China trade talks completely derail, we expect a first Fed rate cut to come no earlier than September, in contrast to what markets have priced in.”
Hong Kong jumped 1%, Sydney rose 0.6%, Shanghai edged 0.1% higher and Singapore put on 1% while Seoul added 0.4%. Wellington, Taipei, Mumbai and Jakarta also climbed, but Tokyo ended 0.7% lower as it was hit by a strengthening yen.
Investors are also gearing up for next week’s high-stakes G20 summit, where Trump is pencilled in to meet his Chinese counterpart Xi Jinping on the sidelines to discuss their trade war. Officials on both sides have played down the likelihood of a deal being struck in Osaka but experts point out that some sort of breakthrough is in the interests of Beijing and Washington as their economies stutter.
“The trade war is starting to ebb away at US data,” said OANDA senior market analyst Edward Moya. “Uncertainty on the trade front remains high and markets will remain undecided until we see the events at the G20 summit in Japan unfold.”
On currency markets, the pound inched up but remains under pressure on growing worries that arch-Brexiter Boris Johnson will be elected leader of the ruling Conservatives to become prime minister, and pull Britain out of the EU without a divorce agreement.
Sterling is at five-month lows ahead of the next round of the party’s leadership vote.
The Australian dollar retreated after minutes from the country’s central bank’s latest policy meeting pointed to a further cut in interest rates this year.
Bitcoin was flat but holding recent gains above $9,000 to sit at levels not touched since May last year as cryptocurrencies enjoy a resurgence on the news that Facebook is planning to unveil plans for its own unit.
The tech titan is expected to outline details of the currency called Libra that will launch next year and already has partnerships with Visa, MasterCard, PayPal and Uber.
While it is still down from the dizzying levels near $20,000 it touched in late 2017 before crashing, Bitcoin is well up from the sub-$4,000 seen in March.
In early European trade London and Paris were flat while Frankfurt fell 0.7%.
In Tokyo, the Nikkei 225 closed down 0.7% to 20972.71 points; Hong Kong — Hang Seng ended up 1.0% to 27,498.77 points and Shanghai — Composite closed up 0.1% to 2,890.16 points yesterday.
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