Markets are caught between two conflicting currents. Rising tensions between China and the US are raising concerns, while easing Covid-19 lockdown measures are fuelling growth optimism. The backdrop of central bank liquidity and government stimulus provides buoyancy. The different market drivers saw Asia Pacific markets diverge yesterday.

Japan lifted its virus-related state of emergency yesterday, and investors responded by pushing the Nikkei index 1.7% higher. In contrast, stocks in Shanghai and Hong Kong traded lower for most of the day before climbing back to flat, and failing to recoup Friday’s losses, after Beijing and Washington traded barbs over the weekend. However, trading was affected by holidays in Singapore, the UK and the US, and today’s full trading session could see more a consistent regional performance.

Singapore is in focus. The government is expected to announce details of a fourth stimulus package today, and major data is due. Final GDP is forecast to show a contraction of 8.2% for the first quarter, or -1.6% for the year. Consensus estimates suggest industrial production fell 7.0% in April, while core inflation slipped 0.5%. Misses on the numbers may be offset by the government package, but positive surprises could spur the Singapore dollar and local stocks higher.

The Euro held ground overnight despite clear signals from ECB officials that more support is coming. Forex traders took a different stance to equity markets, buying the haven US dollar, Japanese yen and Swiss franc, at the expense of commodity currencies.

The opening impulse for the region is growth-positive. German, French and Spanish indices gained more than 2% overnight, crude oil traded higher and gold edged lower. Materials stocks may suffer after falls in base metals, and ongoing support for bonds illustrates both fractured market sentiment and historic levels of global liquidity.

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