European and US share indices posted more gains overnight as investors optimistically eye easing lockdown measures. The US S&P 500 index closed above 3,000 for the first time since early March. However other asset classes failed to confirm the optimism. Safe haven bonds rallied, and gold held above US $1,700. Base metals slumped, and commodity currencies gave up recent gains as tension between the US and China rose over the status of Hong Kong.

The US Secretary of State announced overnight that the US could no longer certify Hong Kong’s political independence. This has implications for Hong Kong’s special trading status and preferential tariff treatment. Worse, reports out of Washington indicate the US Treasury Department could freeze assets, lift tariffs and impose controls on transactions. The South China Morning Post suggested that China could take “countermeasures” against any outside nation’s action on Hong Kong.

Crude oil markets fell with base metals. The deterioration in commodities hit the Australian dollar hard, and the New Zealand, Canadian and Norwegian currencies also came off. The Chines yuan fixing is in focus today. The yuan is trading near its all-time low against the US dollar, and further weakening could signal escalation of tension.

The mixed signals from international markets presents a quandary for Asia Pacific investors. Futures markets indicate opening gains for stocks in Japan and Australia, but falls in Hong Kong and Singapore. It’s unlikely this divergence will survive the session. By the end of the day local investors will deliver a verdict on which is more important to the short term outlook – easing lockdowns or rising China/US tension.

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