(04 JUNE 2020)DAILY MARKET BRIEF 1:Profit taking on softer risk appetite.

Tensions between the US and China escalate as China blocks American shippers from reentering China and Donald Trump suspends Chinese airline passenger flights to the US. The UK on the other hand announced it will welcome three million Hong Kong residents that have seen their rights and freedoms smashed by the new national security law.

HSBC and Shanghai Banking Corporation, two British institutions which have strong ties with mainland China, backed the new law, however. HSBC shares gained 1.57% in Hong Kong, on relief that the bank certainly won’t lose its access to a major business pillar as a result of frictions with the Western world.

And a strong ADP read gave a major boost to investors sentiment in the US, as the data showed that the US economy lost 2.76 million jobs in May, meaningfully better than 9 million decline expected by analysts and nearly 20 million job losses announced a month earlier. The ISM non-manufacturing PMI confirmed a slower contraction in May. Both data supported the idea of a faster post-Covid recovery. The Dow closed Wednesday’s session 2% higher, the S&P500 gained 1.36% and Nasdaq advanced 0.78%.

Mood in Asia was less cheerful, however, as data showed that the Australian retail sales slumped 17.7% in April and European data will likely confirm a 15% decline later this morning, as well.

Nikkei (+0.17%) and ASX 200 (+0.96%) edged marginally higher, as stocks in Hong Kong and Shanghai recorded timid losses on rising US, China tensions.

Industrial metals softened, as oil retreated. WTI crude ran into a brick wall near $38 per barrel. The price of a barrel eased to $36 pb as oil investors preferred taking no risk and realizing profit amid US oil inventories pointed at a surprise 2.1-million-barrel decline last week, and the rising uncertainty about the much-expected OPEC-Russia meeting pinned investors’ hopes that a 9.7-million barrel production cut may not be announced this week. But given the optimism on post-Covid economic normalisation and joint efforts to curb the global supply glut, price retreats near and below the $35 mark could be good dip-buying opportunities. Solid support could be found near $32/30 area.

Activity on US and European futures hint at a neutral start on Thursday. The FTSE 100 is expected to consolidate gains below the 7400p mark on stronger pound and pause in oil and commodity gains.

By Ipek Ozkardeskaya