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  • Aussie shares start the week on the bid due to positive prospects from the easing of COVID-19 lockdown restrictions. 
  • Donald Trump has already warned that he will “react strongly” to China’s enforcement mechanism for ensuring national security” for Hong Kong.

Australian shares have started the week on the front foot, despite the growing concerns over the US and Chinese relations. Instead, markets are gearing up for some form of a return to normality as nations open from their heavy lockdowns, seeing a light at the end of the tunnel. At the time of writing, the ASX 200 Index is trading around 1.5% higher in the session having travelled from a low of 5,497.0 to a high of 5,589.4. 

Aussie shares en route for 50% mean reversion of the Feb drop to March lows. It’s been a grind in getting here and the index has been capped from some time around the 5,500s. However, glimmers of progress and signs of slowing in the pandemic have encouraged commitment form the bulls and strong hands. China announced a $430 billion stimulus package on Friday, in a bid to reinvigorate China’s stalled economy which can be a positive input for the index this week. 

Bulls are far from out of the woods

Nearly every stock on the benchmark index was trading higher at the open on Monday, following a lead from Wall Street. However, bulls are far from out of the woods, instead, this could be seen as making hay while the sun shines. While the relaxation of social distancing measures is positive for stocks as consumer consumption will surely help the economies give a boost to prices, there are plenty of risks associated with COVID-19, implications from both the past, present and future. A second wave is probable and while the bulls hope for plenty of consumption from pent-up demand, the markets could be set up for a serious let down on that front. 

Meanwhile, we can expect there to be hurdles for the stock markets to get overdue to China confirming at its annual National People’s Congress that there will be a bill establishing “an enforcement mechanism for ensuring national security” for Hong Kong. The US President Donald Trump has already warned that he will “react strongly” if Beijing proceeds with this plan. It is a controversial plan that has drawn swift condemnation from US officials:

US Secretary of State Mike Pompeo has condemned the proposed national security law. Pompeo is warning that the passage of the legislation would be a “death knell” for Hong Kong’s autonomy. The US stands “with the people of Hong Kong,” Pompeo proclaimed. 

The United States strongly urges Beijing to reconsider its disastrous proposal, abide by its international obligations, and respect Hong Kong’s high degree of autonomy, democratic institutions, and civil liberties, which are key to preserving its special status under US law,

– Pompeo said.

  • China’s plan of national security law in Hong Kong puts Trump in an unwelcome spot with Xi

Meanwhile, as for performances in sectors, energy and industrials were the best performers in the ASX sectors on Monday, despite Brent crude futures falling (-0.6pc) to $US34.90 per barrel. For the day ahead, Wall Street will be closed for Memorial Day, while British markets will be shut for the Spring Bank public holiday. 

ASX 200 Index levels

The bulls are grinding higher around a 38.2% Fibonacci but have surpassed this level now with a series of daily closes. This level now comes as key support juts below 5,500. On a continuation, bulls will target a close above 5,625 for a run to a 50% mean reversion level at 5,976. A 61.8% ratio comes in at 6,127.