Asia Plays Wait And See | Daily Market Commentary with Jeffrey Halley

US markets were partially closed for Veteran’s Day, meaning turnover was light on most North American markets, except gold. With trade negotiations seemingly in a lull for the past few days, lacking concrete details or even a signing date, financial markets have moved into a cautious “wait and see” mode. One note of caution though, is that equities, and oil in particular, have a lot of good news priced into them at these heady levels. It makes both vulnerable to potentially ugly downside corrections, should the trade deal script take an unexpected turn for the worse.

With so much riding in Asia on an interim trade deal to get the region’s biggest customer, China, importing again; it is unsurprising that the region appears to be sitting on its hands today as well. Regional markets will also be casting a nervous eye towards Hong Kong, whose stock market meltdown yesterday as the violence worsened, spilt over into regional bourses as well. Another day of severe disruption and a repeat of the tragic events of Monday, will undoubtedly send shivers through Asian markets. Fears of direct intervention by Beijing will increase, potentially putting another nail into a Hong Kong economy that is now deep in recession.

Todays Asian data calendar is very light with NAB Business Confidence in Australia making a welcome surprise to the topside, printing at plus 2. Attention will more likely though be on the vast bushfires in New South Wales, now potentially threatening Sydney, and the downstream economic ramifications.

Singapore Retail Sales are released at 1300 and are expected to fall by 1.40% as the City State’s consumers continue keeping their wallets closed. Being more exposed than most to the US-China trade war, economic activity has, unsurprisingly, been benign this year with a procession of soft data spurring an easing of monetary conditions by the MAS last month. One bright spot though is that an improvement in US-China trade relations leaves Singapore poised better than most, to gain an immediate benefit. The worsening situation in Hong Kong will almost certainly benefit Singapore in the longer-term, as investment decisions between the two become no-brainer right now.

Japan Machine Tool Orders at 1400 SGT are forecast to fall to a mind-boggling -30% YoY, quite incredibly, an improvement of last months -35% YoY. It is further proof of the strange times we live in, and the desperate chase by capital for gains, that a number like this is occurring as the Nikkei 225 is at record highs. Japan, of course, is not alone with that situation. If anything, it emphasises the potential dangerous territories equity markets globally find themselves in, should the US-China trade talks break down?

Equities

Asian markets are off to a quiet start today as Wall Streets major indices all closed sideways in holiday-thinned trading. A lack of trade developments has investors concentrating on Hong Kong this morning, after it led everybody lower yesterday.

Wall Streets consolidative day probably comes as a welcome relief. It has allowed regional markets to hold their ground mostly. The Nikkei 225 is flat, the Kospi is 0.15% higher and the Straits Times is 0.32% higher, likely gaining a positive dividend from Hong Kong’s woes.

The ASX 200 is lower by 0.45% as markets nervously gauge the effect of the giant NSW fires. Hong Kong is 0.40% lower and the Shanghai Comp is 0.30%, lower as both markets nervously monitor Hong Kong situation, with many businesses and schools shut today.

Currencies

Veteran’s Day curtailed volumes in North America, with the bond market closed and a lack of fresh trade news mildly eroding the dollars recent gains against the major currencies. The dollar index fell 0.15% to 98.28.
In keeping with the quiet session overnight, major and regional currencies are almost unchanged in Asia this morning.

The New Zealand Dollar(NZD) has been the morning’s primary mover, falling 0.45% to 0.6330, just ahead of daily support at 0.6320. The culprit was disappointing visitor arrival data for New Zealand’s crucial tourism sector. Markets are nervously awaiting tomorrows RBNZ rate decision with most pundits still split 50/50 on whether the RBNZ cuts even further into record lows.

Oil

Oil moved gently lower overnight in thin conditions as a lack of new trade impetus saw long positioning trimmed. Brent crude fell 0.70% to $62.50 a barrel, and WTI fell 0.90% to  $56.90 a barrel.

Both contracts are consolidating in recent ranges — Brent between $62.00 and  $64.00, and WTI between $56.00 and $58.00 a barrel. Of the two, Brent looks the mire vulnerable at the moment, probably reflecting its exposure to the whims of pre-OPEC+ meeting rhetoric in December.

Oil looks to be running on gaseous trade vapours at the moment, and as we know, they are highly combustible. A break of the lower recent trading ranges, implies a technical correction of at least two dollars per contract, possibly more, with so much good news is already built into prices.

Gold

Gold’s woes continued overnight as the rotation as out stale longer-term positioning went on. Although gold only fell 0.25% to $ 1456.50 for the session, that disguised quite an aggressive sell-off earlier in the day where gold quickly dropped to $1448.00 an ounce before rallying.

The culprit was the futures market where Bloomberg report over 3 million ounces or over 30,000 contracts changed hands between 1000 and 1030 NYT. That is seriously impressive volume on a typical day, let alone a holiday-thinned session. It has all the hallmarks of a large stop-loss executed at market or an at the market capitulation of longer-term positioning.

A technical close, on a daily basis, under $1450.00 creates empty chart space until $1400.00 an ounce. We could, therefore, see more such flows come to market as long-term positioning locks in profits, or longs placed above $1500.00 wave the white flag and surrender.