Asian equities refuse US buy-in

Wall Street climbs but Asia hesitates

US equities had a mighty session overnight, powered by ISM and Non-Farm Payroll recovery hopes. However, Asia’s markets, less the sheep followers of Australia, have adopted a much more cautious tone. That is a pattern that repeated itself last week, where strong rallies on Wall Street were not replicated in Asia. Overnight the S&P 500 rose 1.44%, the Nasdaq rallied by 1.67%, and the Dow Jones finished 1.12% higher.

The schizophrenic behaviour of Wall Street last week, which spent it chasing its tail on a day-to-day basis, could be part of the reason. Doubts over the longevity of the rally overnight are as good a reason to be cautious as any. It could also be that investors globally, including Asia, are following the noise and concentrating on the seemingly effortless gains available on Wall Street. US index futures have also edged lower this morning after yesterday’s rally. Nagging Covid-19 fears in China, South Korea and Japan, mainly the latter two, may also be sapping investors’ nerves.

A combination of all of the above has seen the Nikkei 225 fall 0.70% this morning, with the Kospi down 0.20%. Nerves ahead of this morning’s 30-year JGB auction in Japan may also be denting sentiment. On mainland China, the Shanghai Composite is down 0.10%, with the CSI 300 lower by 0.30%. Hong Kong is closed for a holiday, but Taipei has bucked the trend by rising 1.10% after technology’s powerful rally on Wall Street.

Singapore and Jakarta are 0.10% lower, with Kuala Lumpur down 0.35%, while Manila has carved out a 0.55% gain after inflation rose by less than expected. Australian markets are slavishly following Wall Street, though, boosted by significant increases in commodity prices overnight and an RBA anticipated to remain uber-dovish. The ASX 200 has risen 1.05%, and the All Ordinaries has climbed by 0.80%.

The cautious tone struck by Asian markets is likely to be reflected by heavily cyclical European markets this afternoon. Their situation complicated by Covid-19 and escalating tensions on their Eastern border. Asian markets most likely need to see two consistent days of powerful rallies by Wall Street to start buying into the recovery trade once again.

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