Asian equity markets were the standout performer on the day as the region digested bad US data / good US data dichotomy and mixed China trade data. The US payroll figures, presented as the biggest volatility shocker, set the tone for the investors’ minds across the continent. Specifically, as always, the persistent trade war with Beijing jumps out as a sore spot, and perhaps an ominous foreshadow of bigger problems to come.
The United States reported much stronger-than-expected payroll numbers, usually a market-moving catalyst. In short, investors are looking at these developments with a hawk’s eye, for they represent the gist of economic conditions. That good employment data has jump-started a “bad news is good news” mentality on stock street. The investors interpret positive signals as victory flags, a harbinger of better times to come despite inflation and high interest rates still gnawing from within.
President Trump recently grabbed headlines with a trade announcement related to Vietnam. The most surprising part of the announcement is the implementation of a 20% tariff on Vietnamese exports and a whopping 40% tariff on transshipped goods from Vietnam. These punitive tariffs are intended to remedy trade imbalances. The enforcement mechanisms are not transparent, which leaves a lot of investors up in the air.
While markets are now looking at all that means, retaliation from Beijing is a risk that can’t be ignored. China has become a handy scapegoat in the ongoing trade saga. Should the Chinese government respond poorly, tensions will escalate further and Asian stocks may be at risk of shooting up this volatility even more. For investors, the China angle is still very much top of mind — as it should be with respect to market dynamics.
Japan’s bond market has been experiencing the combined effects of these trends. The long-end of the yield curve is most decidedly under pressure, especially in the run-up to a potentially important 30-year auction today. Market analysts are hoping that this auction will provide some critical guidance on investor sentiment. They remain especially vigilant on dynamic, fiscal Japan, as the world’s stage continues to change. After a heavy sell-off during UK trading hours, Treasuries made up some ground during Asia time. This trend represents the increasing demand for safer assets in a world with more uncertainty.
Against that backdrop of volatility, the S&P 500 notched its fourth consecutive record close in the session prior. This milestone highlights the remarkable robustness of US equities, even as markets around the world wrestle with significant headwinds. Asian equities are drifting higher today, buoyed by optimism that may stem from the US market’s performance despite underlying uncertainties.