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Trade optimism is back, but will it stay?

CMC Markets

US equity indices rebounded last night, reversing a heavy selloff earlier this week. The overnight rebound was fuelled by trade optimism as US and China were reported to have moved closer to a trade deal.

Both sides are finalising details on how much tariffs should be rolled back. However, until the day we see it in black and white, investors are likely to remain cautious and vigilant on this matter.

There are still a couple of concerns looming, including a worse-than-expected US manufacturing PMI and disappointing ADP jobs report. Soft macroeconomic data weighed on the prospect of a US economic recovery and sentiment could turn sour again if tomorrow’s non-farm payroll report disappoints.

The Hong Kong (HK) government announced a fourth round of relief measures worth about HK$ 4 billion to help SMEs with their cash flow. Measures combined are expected to generate 2 percent growth in GDP. However, this is insufficient to bring HK’s economy back to expansion in Q4.

According to the IHS Markit report yesterday, HK’s PMI has fallen to its lowest level since the SARS period and its Q4 GDP could fall as much as 5% unless December brings a dramatic recovery.

The Reserve Bank of India (RBI) is expected to cut policy rates by 25bps today but investors are questioning the effectiveness of India’s monetary policy due to poor transmission. Year to date, the RBI has cut 135bps, but it only resulted in a 60 bps reduction in lending rates for fresh loans and much lower for all outstanding loans. Besides, rising inflation as a result of rising food price will inhibit the RBI to carry out a much bigger monetary stimulus going forward.

Oil prices surged over 3% overnight, as OPEC+ members will be discussing a cut in output by another 0.4 million bpd in a meeting tomorrow. The US DoE crude oil report registered a larger than expected drop in oil stockpile, boosting oil prices. Traders should be mindful of ‘buy on expectation, sell on the facts’.

 

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