Dow sinks on Pelosi Taipei visit, soft earnings

Nancy Pelosi grounded in Taipei on Tuesday night in a visit condemned by China. The US Speaker is the first high-ranking official to visit Taiwan since 1997 and China is forewarning of a “major political provocation”.

Beijing was quick to retaliate and banned certain imports and exports from and to Taiwan. The Chinese military conducted military exercises.

The US indices have been sensitive to ‘noise’ around the matter. Pre-markets are in the green, but only de-escalation would offer traders an opportunity for relief.

Key Factors for today

• China’s military prepares for war after perceived confrontation
• Asian-Pacific markets supported by escalation and PMIs
• ‘Dove’ speakers turn more hawkish, DJIA plummets
• Uber and PayPal soar after cashflow and expectations beat

Asian-Pacific markets on the rise on geopolitical risk, PMIs

Despite China’s stark warnings, US House Speaker Nancy Pelosi landed in Taiwan yesterday for a series of meetings in an attempt to improve trade relations between the US and Taiwan. Chinese officials receive the trip as a direct provocation.

So far, most of China's response has been statements, though, that visit violets "one China" principle. However, reports circulated that Contemporary Amperex Technology paused the construction of a plant in the US in response to the visit. China has withdrawn food export licenses from over 100 Taiwanese firms indeed. Markets expect more retaliatory moves.

Japan’s Nikkei, HIS, Shanghai and Kospi rose 0.50%, 0.70%, 0.53% and 0.75% on the back of intensified tensions. Investors seem to slowly price in the risk of live fire drills in the Strait of Taiwan, starting August 4. The HSI was assisted by the recent PMI report as a fourth month in expansion was seen. Caixin services PMI came in well above expectations, offering the Shanghai Composite a helping hand. The RBA also raised rates by 50bps as expected. The ASX traded 0.40% lower.

DJIA plummets 1.25% after Speakers turn more hawkish

A series of Fed speakers "corrected" their market narrative following the latest meeting. Three Fed speakers affirmed that rates would likely continue for the rest of the year. Of note is Fed’s Charles Evans, who suggested that 50-75bps would be reasonable to OK, and 100bps "doubtful". He suggested that after September, Fed could raise by 25bps increments for the rest of the year. Evans is a known ‘dove’.

US indices were in the red, again, with the DJIA posting its biggest daily loss in months after falling 1.25%. S&P and Nasdaq were 0.67% and 0.16% lower only, partially impacted by renewed tensions.

Stocks that moved

• Uber closed 19% higher after reporting positive free cash flow for the first time ever
• Match Group fell after missing estimates and guiding below expectations
• Paypal jumped 12% after its earnings beat expectations on the top and bottom line, and a new buyback program. Guidance disappointed, though
• SolarEedge dropped despite beating estimates as markets took concerns over the supply chain with a grain of salt

In focus

• German, French and EA Global Services PMI expected to fall; UK’s to contract
• EA Retail Sales expected to contract 1.7%
• Analysts expect US NMI to fall, S&P PMIs in contraction
• EIA report crucial for WTI and Brent price action as all eyes on production
• Will Fed’s Harker ‘turn’ too