Asian equities China tariff rally fades

China’s Covid flare-up weighs on Asian markets

US OTC equity markets were closed overnight for the July 4^th holiday, but US futures posted consistent gains as markets pinned their hopes on a reduction of US tariffs on Chinese goods this week. S&P 500 futures are 0.40% higher, Nasdaq futures have rallied by 0.85%, and Dow futures have gained 0.55%.

That theme saw Asian markets open higher this morning, but that rally seems to have faded as the session marched on. Concerns around the latest China virus flare-up and the prospect of restrictions seem to be weighing on Asian markets and rightly so. Lower tariffed goods to the US will mean little if supply chain disruptions from China occur again. That has led to a mixed day across Asia.

Japan’s Nikkei 225 is 0.55% higher today, well of the intraday highs, while South Korea’s Kospi has rallied by 1.20%. Mainland China has moved into the red, the Shanghai Composite falling by 0.25%, with the CSI 300 falling by 0.60% despite an impressive recovery by the Caixin Services PMI data. Hong Kong’s Hang Seng has now fallen into negative territory, down by 0.05%.

Singapore is 0.30% lower, with Taipei easing by 0.25%, Kuala Lumpur clinging to a 0.05% gain, while Jakarta is outperforming, rising by 0.90%. Manila has also surprised, rallying by 1.20%, with Bangkok adding 0.25%. Australia is clinging onto some of its earlier gains ahead of the RBA policy decision, with 0.50% priced in. Still, its high beta to China means it is well off earlier highs in the day. The ASX 200 and All Ordinaries are 0.30% higher.

Europe had a mixed session overnight, and with a US holiday and a slow news day, there will be little to inspire a strong direction move this afternoon. I expect a neutral opening. With US futures gaining during the US holiday, and China tariff cuts expected this week, I expect US markets to focus their efforts on this direction and open higher tonight, potentially lifting European markets later in the day.

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