The fix in focus again
At great reputational risk, to take the words of Donald Trump, there is one word that seems to be directing the markets in quiet pre-Christmas trade – China. The pause in the devaluation of the renminbi and announcements of further fiscal and monetary easing from the Central Economic Work Conference (CEWC) have been moving equities and currencies upwards.
The CNY mid-point was fixed stronger by 0.01% today giving further credence to the argument that the 5.9% (basically 6%) depreciation in the mid-point since early-August may be the near term plateau for the currency. This argument does look to be held out by the 0.4% decline seen in the offshore USD/CNH rate since its 17 December high. Over 2016, further easing in the CNY does seem likely, although this is likely to be dictated by the market pricing for the next rate hike by the Fed. Based on the current WIRP bond market pricing, there is a more 50% chance that the next rate hike could happen in April, indicating the next big step in CNY easing could happen curing March and April 2016. Although a further 2% easing by the end of January would make it a nicely auspicious cumulative 8% devaluation of the CNY to ring in the Chinese New Year of the Fire Monkey. The greater significance of these moves by the Peoples’ Bank of China (PBoC) is whether this will now see less buying of the US dollar. The DXY dollar index has traded relatively flat in the Asia session, but the Aussie gained 0.4% and the kiwi gained 0.6% in the direct wake of the Chinese fix.
ASX
The ASX has been a battle between the large caps and the rest today. The index hugged close to the 5100 level again and looks to continue around these levels for the rest of the week. The unlikely to catch-on acronym of BRAWNTC (N:BHP, N:RIO, AX:ANZ, Westpac (N:WBK), AX:NAB, Telstra (OTC:TLSYY), AX:CBA), which accounts for roughly 43% of the ASX 200, was adding a serious drag on the index today.
All of these blue chips were down despite 140 listings rising on the day. This was a very rare occurrence, which seems more likely to be attributable to the very low pre-Christmas volumes, which were 38% below the 30-day moving average.
The biggest surprise of the day was the very strong performance in the energy sector, which gained 0.9% on the day despite the ongoing sell off in the oil price.
On such a quiet day for volumes, it was interesting to see which stocks were seeing unusually high volumes. Bega Cheese (AX:BGA) led the pack by a mile with turnover in the stock 179% above its 20-day average. The roughly 50% rise seen in A2 Milk (AX:A2M) and ongoing gains by Bellamy's (AX:BAL) over recent days seems to be supporting Bega as well, which has recently announced that it plans to move into similar higher value products, i.e. infant formula.
Ahead of the European open we are calling the FTSE 6060 +26, DAX 10555 +58, CAC 4593 +28
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