Hong Kong Casts Shadow Over Asian Markets | Daily Market Commentary with Jeffrey Halley
Apparent trade negotiation progress, pushed Wall Street to record highs on Friday. Asia though is unlikely to sign on to America’s phase one interim equity rally fully today, with rioting and sieges in Hong Kong over this weekend likely to cast a pall over Greater China markets.
The trade talks themselves featured a heavy-weight video conference between both sides over the weekend. China’s Vice Premier Liu He and the US Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer spoke. China’s Ministry of Commerce website saying, (in Mandarin), ” The two sides have engaged in constructive discussions around the respective core concerns of the first phase of the agreement and will continue to maintain close communication.”
Maybe that has been lost in google-translation. To these cynical old ears though, that doesn’t quite match-up with Larry Kudlow’s comments of late last week, along the lines of we’re very nearly there, just a little bit longer. To get to this point seems to have slowed time to a Brexit-like event horizon, space-time distortion. I dread to think how long a comprehensive deal could take if it is even possible. Brexit’s prolonged slow water torture may look like a 30-second Super Bowl advert by the time we are done.
What can’t be emphasised enough is the amount of good news that is now priced into global financial markets. If China’s Ministry of Commerce comments seemed more circumspect than excited, imagine what the reaction of markets will be if the self-imposed, tariff-geddon December 15th deadline slips or talks reach an impasse. Mssrs Trump, Xi, Liu, Kudlow, Mnuchin and Lighthizer could well be the Grinches who stole Christmas.
Hong Kong’s political troubles look set to dominate headlines this morning in Asia dampening sentiment in the region. Hong Kong police stormed a university fortified by protesters this morning but were beaten back by petrol bombs and bows and arrows. A result unlikely to please the all-seeing eye at Beijing HQ. Alibaba’s new massively over-subscribed IPO in Hong Kong next week means more overt action by the Mainland is doubtful in the short-term.
With parts of the SAR battlezones, schools and universities closed, transport infrastructure disrupted or damaged, and the economy well and truly in recession, the local elections this Sunday, November 24th may be in jeopardy. Authorities will face a delicate balancing act on whether to postpone the polls, risking escalating protests, and claims of political interference; or hold them as scheduled. The Hong Kong administration’s track record on critical political decisions, won’t fill the market’s will confidence. Hong Kong will remain a headline this week, although acting as a brake on irrational trade exuberance, may well turn out to be a blessing in disguise come December 15th.
Singapore’s ghastly run of data continues this morning with Non-Oil Exports collapsing to -12.30% YoY and -2.90% MoM for October, both worse than forecast. Thankfully for Singapore, it continues to comfortably pay its way int he worlds, with the Balance of Trade falling to a still healthy surplus of SGD 3.78 billion for October.
Healthy current account and fiscal surpluses, combined with low to negligible government debt, means Singapore is as well-positioned as anyone to whether the global slowdown, even if it turned to a full recession next year. A trade bellwether, Singapore is always going to feel the trade-war heat first but is also positioned to recover much faster as a result. Domestic consumption is another story altogether. There are only so many shopping malls you can put on one island filled with identical shops, that you can ask the man on the street to spend all his or her’s money at. That issue, however, predates the 2018 slowdown and will continue long after as Singapore gets old.
Thailand’s GDP at 1030 SGT and Hong Kong’s Unemployment data at 1630 SGT, round out today’s highlights in Axia.
Although all three major Wall Street indices closed at record highs on Friday on trade hopes, however early Asia is refusing to play ball, with the ASX 200 actually lower by 0.60% this morning, as the economic damage from the Australian wildfires is assessed.
The S&P 500 rose 0.77%, the Nasdaq rose 0.73%, and the Dow Jones rose 0.80% as America continues to bet big on an interim trade-deal. Hong Kong’s troubles have clouded sentiment in Asia though with the Nikkei 225 only 0.15% higher and the STI higher by 0.22%. Hong Kong’s Hang Seng has edged up by 0.30%, possibly boosted by demand for Alibaba’s upcoming IPO.
The dollar edged lower on Friday, driven by trade-deal hopes, with the dollar index falling 0.17% to 98.00. Haven currencies such a JPY and CHF notably gave ground with USD/JPY rising to 108.80 and USD/CHF rising to 98.90. Overall though, the major currencies continue to range against the dollar with trade sentiment’s daily flip-flops driving intra-day price action. A conclusion to the preliminary trade-talks, either for good or for ill, will be required to awake the currency market from its wait-and-see slumber.
USD/CNH is higher by 0.17% to 7.0170 this morning as Hong Kong tensions weigh on sentiment. Elsewhere across Asia, major and regional currencies remain almost unchanged.
Oil continued its rally on Friday, entirely buying into trade take hopes with Brent Crude rising 1.75% to $63.45 a barrel, and WTI rising 1.60% to $57.45 a barrel. Both contracts closed at their November highs and weekly technical resistance levels.
Asia prices are almost unchanged, and Asia seems unlikely to explore further topside ahead of the New York session. Aramco’s IPO valuation was set at $1.60-1.71 trillion over the weekend, towards the higher end of recent expectations. That should provide a small boost of confidence in what are very overnight oil markets and provide support on any dips in prices in Asia today.
Gold retreated slightly on Friday as short-term trade sentiment saw a rotation out of haven positioning. Gold slipped 0.20% to $1465.00 an ounce having failed to seriously retest critical resistance at $1480.00 over the previous week.
The $1480.00 an ounce technical resistance remains the most significant barrier to a gold recovery with interim support jest below at $1460.00 an ounce. In all likelihood, a breakdown in trade-talks remains the only scenario to breath new life into gold prices at this time.