Hong Kong was on holiday today, ostensibly celebrating the 23rd anniversary of the Hong Kong handover to China in 1997. This anniversary will be of cold comfort to the territory today however, because Beijing’s new security law was approved and enacted into the SAR’s Basic Law last night. The content is more vigorous than expected, with the only positive note being that it is not being applied retrospectively. So, how much of a fall-out for Hong Kong of Beijing’s much-increased supervision will be, very much depends on the response of the international community. I rather suspect that money talks and Hong Kong has a lot of it sloshing around. Personal and press freedom will take a hit, as will China’s wilting international reputation. But unless foreign governments order their national companies to leave, it will likely be business as usual in the SAR sooner rather than later.

Being the first day of the month, the data calendar has already been a heavy one, with the release of PMIs from across the region. The news is mostly good, led by China’s Caixin Manufacturing PMI, which outperformed. The Caixin PMI rose to 51.2, confirming the expansionary recovery seen in the official data yesterday. Across the region, Australia, Malaysia, Myanmar, South Korea, Philippines, Thailand, and Vietnam PMIs all showed continued improvement over the May data. Only Asia’s own “English patient”, Japan, disappointed. The Tankan index of sentiment for large manufacturers fell to -34 points. Weakness was shown across all major sectors. The perpetual disappointment of a deflationary Japan aside, the tentative recovery over the rest of Asia appears to be on track. That should support equity markets across the region today.

That same trend should continue across Europe and the United States as they release their PMIs later today. With Europe reopening within its bubble, the Eurozone may well outperform the US in Q3. Something I never thought I would ever say. The trajectory of Covid-19 in the United States increasingly concerns, as is the competence and willingness of the country’s leadership to manage and overcome it. Throw in a US election in November, and the rest of the world may have to get along without Uncle Sam for a little while.

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The ongoing Covid-19 debacle in the United States, combined with geopolitical tensions, still has the potential to derail the asset price recovery, particularly if mass lockdowns return. The central bank monetary put will ensure that we will not return to mid-March levels, though. A correction in equity markets, among others, is long overdue, but that’s all it will be in Q3 – a correction.

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