Asian Stock Market: China fears, downbeat S&P500 Futures prod bulls on Juneteenth holiday

• Market sentiment remains sluggish, fades previous day optimism amid mixed concerns about China, US holiday.
• US-China ties, Beijing’s stimulus favor optimists but major banks cut dragon nation’s growth forecasts and lure bears.
• Hawkish Fed concerns, mixed US data trouble market players during sluggish start of the key week.
• Fed Chair Powell’s Testimony, China measures and PMI eyed for clear directions.

Markets in the Asia-Pacific region edge lower, pausing the previous day’s gains at the multi-day high, as traders struggle to cheer China-inspired optimism amid mixed clues. Adding to the consolidation move could be the US equity and bond markets’ holiday due to the Juneteenth observance.

While portraying the mood, MSCI’s index of the Asia-Pacific shares outside Japan drop 0.90% intraday as it retreats from the highest levels in four months marked the previous day. That said, Japan’s Nikkei 225 also prints mild losses around 33,671 while S&P500 Futures trace Wall Street benchmarks to pause the previous rally that renewed the yearly top.

Headlines surrounding multiple banks cutting China’s growth forecasts recently challenged the market’s risk appetite. However, news from the South China Morning Post (SCMP) quoted China State Council to favor the week-start optimism by suggesting more stimulus from the Asian major. On the same line could be the receding fears of the US-China tussle as the key Diplomats from both nations are said to have held “candid and constructive talks” on their differences from Taiwan to trade, per Reuters.

With this, the Chinese stocks reverse the previous gains and weigh on equities in Hong Kong, Indonesia and New Zealand. It should be noted that the easing hopes of the Reserve Bank of Australia’s (RBA) hawkish moves allow Australia’s ASX 200 to print mild gains.

On a broader front, Fed policymakers’ defense of the July rate hike concerns weighs on the sentiment despite mixed US data. That said, the preliminary readings of the University of Michigan (UoM) Consumer Sentiment Index (CSI) for June improved but the US inflation expectations eased for June the previous day. Even so, Fed policymakers have been hawkish of late and allowed the bears to sneak in amid a sluggish start to another key week. It’s worth noting that the US Dollar Index dropped the most since early January in the last week mainly due to the downbeat US inflation, Retail Sales and Fed’s hawkish pause, not to forget the ECB’s comparatively hawkish move.

It’s worth noting that the Bank of Japan’s (BoJ) inaction joins the likely limited hawkish moves by the RBA and the RBNZ, not to forget PBoC’s rate cut, to keep the Asia-Pacific traders on the front foot despite the latest pullback in the share prices.

Looking ahead, monetary policy meetings of the Bank of England and Swiss National Bank (SNB) will join Fed Chair Jerome Powell’s bi-annual Testimony to entertain market players. Additionally important will be the preliminary PMIs for June.

Also read: A market still desperately seeking clarity on the inflation picture