Morning Briefing: Hong Kong rallied 4% on de-escalation of US-China tension

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Vrasidas Neofytou
Head of Investment Research

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Asian markets were higher on Monday, with the Hang Seng index surging nearly 4%, after President Donald Trump signaled no changes to the “Phase One” trade deal with China despite escalation of trade tensions over Hong Kong’s status. Furthermore, market sentiment was improved from the expansionary manufacturing activity in China last month.

Coronavirus Update:

Global cases: More than 6.1 million
Global deaths: At least 371,995
U.S. cases: More than 1.78 million
U.S. deaths: At least 104,381

Market Reaction:

Hang Seng index finished the first day of the week with 3.5% in gains, gaining support from the limited response of the US administration to Beijing’s tightening control over the city of Hong Kong. Investors felt relief from Trump’s decision not to end “Phase one” trade deal with China when he laid out his response to China’s national security law for Hong Kong and Macau on Friday, although he did vow to end Hong Kong's special status.

Fig.01: Hang Seng index, Daily chart

US futures fell on Monday morning on risk aversion sentiment as riots began last week in more than 30 US cities, in protest to the killing of George Floyd by a police officer. Rioters have since burned down police stations and set fire to police cars, deteriorating the market sentiment. Dow Jones futures fell 0.5%, implying an opening near 25.400 points.

Crude Oil:

WTI and Brent crude oil prices rose 0.5% this morning at $35.50 and $38 per barrel respectively, on hopes that the OPEC+ alliance might extend record production cuts until the end of year.

OPEC members together with Russia and other oil-producing allies will have an earlier virtual-meeting on June 4th, instead of June 9-10, to decide whether to keep the existing 9.7 million bpd agreement beyond July. Production cuts are meant to be eased to 7.7 million bpd on July 1st, based on the initial OPEC+ agreement.

WTI crude contract registered its best month on record after gaining more than 80% in May on improved demand and massive production cuts.

Precious Metals:
Gold price climbed near $1.740/oz, supported from safety flows on concerns over US riots, Hong Kong tensions and the US dollar weakness.

Fig.02: Silver price, Daily chart

Silver price gained 2.5% to $18.35/oz this morning, extending its massive recovery rally off the March lows of $12/oz. The white metal, which is also an important industrial metal, has received flows on the improved Chinese manufacturing activity together with the weaker US dollar.

Forex Market:

EUR/USD pair extends its recent rally, breaking above the 1.11 level on Monday morning, driven by optimism generated by the new Eurozone’s pandemic recovery fund of 750 billion-euro announced last week.

Fig.03: EUR/USD pair, 2-hour chart

The DXY-dollar index against major currencies fell near 98 points on de-escalation of trade tensions combined with the US riots in many cities during the weekend.

Economic Calendar for June 01, 2020 (GMT+ 3:00):

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