Weak Stock Rebounds Are Cold Comfort During a Trade War

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(Bloomberg) -- Investors who feel like Asia’s equity markets are currently taking one step forward and then four steps back are actually not that far off.

The endless trade rollercoaster that’s dictated market action for much of this year looks to be climbing yet another hill, with the U.S. benchmark S&P 500 rebounding 1.1% overnight after President Donald Trump once again shifted his tone on China just days after spooking financial markets with another escalation in their dispute.

In Asia, the follow-up has been less dazzling.

The MSCI Asia Pacific Index is up 0.8% Tuesday, with Japan and South Korea struggling to push gains past the 1 percentage point mark while Hong Kong’s Hang Seng Index opened largely flat. Indeed, the Asian benchmark has not registered a one-day advance of more than 1% since mid-July, while posting losses of at least that much on four occasions, including a 2.3% stumble Aug. 5.

The S&P 500 Index meanwhile has been more volatile in both directions, posting four advances greater than 1% just over the past two weeks, while also seeing losses of at least 2.6% twice in that span.

“I see fragility, and when you look at major stock market indices they’re highly vulnerable to significant dislocations in 2019, they’re just lacking that catalyst,” said James Abate, chief investment officer at Centre Asset Management, in an interview on Bloomberg Radio.

“Until a recession actually emerges and we don’t see clearer direction, the markets are going to stay in a state of purgatory almost, with defensives unable to break out to new highs and cyclical areas not breaking down even further,” Abate added.

Investors betting on that recession are keeping a close eye on the McCulley indicator -- a U.S. gauge of core capex orders excluding military and aircraft -- approaching zero. When that measure previously fell into negative territory, recessions followed in 2001 and 2007 while the Federal Reserve’s bond buying kept growth afloat in the 2010s.

Stock-Market Summary

  • MSCI Asia Pacific Index ex-Japan up 0.5%
  • MSCI Asia Pacific Index up 0.8%
  • Japan’s Topix index up 1%; Nikkei 225 up 1.2%
  • Hong Kong’s Hang Seng Index up 0.2%; Hang Seng China Enterprises up 0.4%; Shanghai Composite up 1.8%; CSI 300 up 2%
  • Taiwan’s Taiex index up 0.6%
  • South Korea’s Kospi index up 0.9%; Kospi 200 up 0.9%
  • Australia’s S&P/ASX 200 up 0.6%; New Zealand’s S&P/NZX 50 up 0.8%
  • Singapore’s Straits Times Index up 0.3%; Malaysia’s KLCI down 0.2%; Philippine Stock Exchange Index down 1.7%; Jakarta Composite up 0.7%; Thailand’s SET up 0.3%; Vietnam’s VN Index up 0.4%
  • S&P 500 e-mini futures little changed after index closed up 1.1% in last session

©2019 Bloomberg L.P.

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