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Markets calm after China slide

A sense of calm has returned to Asia today as the China sell-off has abated and investors pause for breath and reflection. Overnight, the S&P 500, Nasdaq and Dow Jones traded sideways to be almost unchanged but still at record highs ahead of heavyweight technology earnings. Tesla’s record after-hours result has failed to lift US futures, though, with S&P 500, Nasdaq and Dow futures down around 0.15% in Asia.

China Industrial Profits rose by 66.90% (YTD) YoY for June, near consensus but lower than the May release. Profits rose across both state and private companies. The data suggests that China’s recovery continues, but the Asian giant is grappling with the same supply chain and material cost challenges the rest of the world is experiencing. The data impact will be low as investors remain transfixed on China regulatory risk.

The pause for breath has produced a mixed result for Asian markets. The Nikkei 225 is 0.50% higher, while the South Korean GDP release has lifted the Kospi by 0.60%, helped by Industrial Profits remaining firm in China today. In China itself, the Shanghai Composite is just 0.15% higher, while the CSI 300 has fallen by 0.35% after plummeting by 4.0% yesterday. Hong Kong is still suffering China technology and credit nerves as the Hang Seng falls by 1.0% today.

Around the region, Singapore has risen 0.50% after the government hinted at a September reopening date for borders. Taipei has fallen 0.40%, while Kuala Lumpur and Jakarta have crawled to a 0.15% gain. Bangkok has fallen by 0.45%, with Manila jumping 1.60% higher. Australian markets have followed Wall Street’s modest 0.25% gains, with the ASX 200 and All Ordinaries rising by 0.50%, helped by Victoria and South Australia signalling the end of their recent virus restrictions.

European markets are likely to follow regional Asia and open modestly higher once again. Still, I expect volatility to be modest as we await the Q2 earnings from Apple, Alphabet and Microsoft. Strong performances will greenlight more gains for Wall Street tonight.