Asia shares rise, Hong Kong in relief rally after US stops short of sanctions on China

A pedestrian walks past a stock market indicator board in Tokyo on May 28, 2020. PHOTO: EPA-EFE

SYDNEY (BLOOMBERG, REUTERS) - Stocks in Asia rose on Monday (June 1) with Hong Kong jumping at the open after US President Donald Trump on Friday stopped short of specifying tough sanctions over China's new national security law for Hong Kong.

The escalation in tensions between the US and China last month had threatened to derail a recovery in global equities. While the US president's speech on Friday was heated in rhetoric, it lacked specifics around measures that would directly affect Beijing.

Hong Kong's Hang Seng Index soared 3.4 per cent while China's benchmark Shanghai Composite Index climbed 1.2 per cent.

Japan's Nikkei rose 1 per cent, South Korea's Kospi index advanced 1.4 per cent while Australia's S&P/ASX 200 Index gained 0.3 per cent.

Singapore's Straits Times Index was up 1.4 per cent at 10:03am local time.

US stock futures erased earlier declines as investors weighed the violent protests in some American cities that have stoked concerns about a reacceleration in infection rates and a damper on the economic recovery.

The demonstrations in the US could add another layer of complexity to the American recovery.

"If American consumers were reluctant to come out of their Covid19 lockdown cocoon, fearing a secondary spreader with police cars ablaze, freeways blocked, and videos of mass looting shared through social media like wildfire, they're not going to feel any safer,' said Stephen Innes, chief global markets strategist at AxiCorp.

Major US cities were cleaning up streets strewn with broken glass and burned out cars as curfews failed to stop confrontations between activists and law enforcement.

Protesters have flooded streets after weeks of lockdowns during the coronavirus pandemic that threw millions out of work and hit minority communities especially hard.

The turmoil was a fresh setback for the economy which was only just emerging from a downturn akin to the Great Depression. Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51 per cent annualised in the second quarter.

The May jobs report due out on Friday is forecast to show the unemployment rate surged to 19.8 per cent, smashing April's record 14.7 per cent. Payrolls are expected to drop by 7.4 million, on top of the 20.5 million jobs lost the previous month.

"Current unemployment numbers go far beyond what has been experienced in any post-war recession," wrote Barclays economist Christian Keller in a note.

"To the extent that some sectors may never return to pre-pandemic business-as-usual, labour faces a substantial challenge to reallocate workers," he added. "Such a process could be a matter of years rather than months or quarters and in the meantime it would weigh on consumer demand."

In Asia, an official business survey from China over the weekend showed its factory activity grew at a slower pace in May but momentum in the services and construction sectors quickened, pointing to an uneven recovery.

Bond investors suspect economies will need massive amounts of central bank support long after they reopen and that is keeping yields super low even as governments borrow much more.

Yields on US 10-year notes were trading at 0.66 per cent having recovered from a blip up to 0.74 per cent last month when the market absorbed a tidal wave of new issuance.

The decline in US yields has been a burden for the dollar, but the world's reserve currency also tends to benefit from safe-haven status to limit the losses.

Early Monday, the dollar was a fraction softer on a basket of peers at 98.223 having touched an 11-week low of 97.944 on Friday. It was steady on the yen at 107.76.

Much of the dollar's recent decline has come against the euro which has been broadly boosted by plans for an EU stimulus package. The single currency was last at US$1.1114 after climbing 1.8 per cent last week.

Markets are awaiting a meeting of the European Central Bank on Thursday where it is widely expected to raise its asset buying by around 500 billion euros to 1.25 trillion.

In commodity markets, oil prices started soft on worries about US demand, but found some support from reports Russia had no objection to the next meeting of OPEC and its allies, known as OPEC+, being brought forward to June 4 from the following week.

Brent crude futures were off 8 cents at US$37.76 a barrel, while US crude dipped 13 cents to US$35.36.

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