Asian markets had a mixed day to end the week after positive leads from Wall Street. Trepidation around the Fed, seasonal tax loss selling, CNY devaluation and the post-OPEC sell off in oil have been weighing heavily on markets this week. Although Japanese markets have clearly reached levels where investors are happy with valuations again. Chinese markets were spooked by the “disappearance” of Fosun's (OTC:FOSUF) chairman, quite likely by China’s anti-corruption department.
The equity sell off this week caused the VIX to spike up to its highest level since 13 November on Wednesday. This concern was evident in the currency markets with the Japanese yen surging 1.5% as safe haven buying re-emerged as a driving force. The decent performance by US equities has seen the VIX ease off slightly overnight. The decline in volatility levels has seen a corresponding easing in demand for the yen, losing 0.6% in Asian trade. The exporter-heavy Japanese indices have been performing the best in Asia today as currency pressures receded as a concern for their earnings outlook. The Nikkei had risen over 1% to make up most of yesterday’s losses.
The People’s Bank of China (PBoC) has cumulatively weakened the midpoint of the CNY by 0.8% this week, its biggest one-week easing since the August devaluation. This has clearly been concerning for markets this week, but it does look to just be the PBoC trying to get out ahead of a likely Fed rate hike next week. This policy has seen the CNY weaken against seven of the G10 currencies this week, a factor no doubt weighing on the stock price of exporters that depend on the Chinese market.
The 0.2% weakening of the CNY midpoint looked to have cause a reversal of the ASX’s early morning gains. Concerns around China’s economy are very much on the mind of investors with the major monthly data dump of retail sales, industrial production and fixed asset investment expected to be released when markets are closed on Saturday. Focus will very much be on whether the substantial monetary and fiscal stimulus manages to buoy the industrial production number, which has declined for the past two months. The Caixin and NBS manufacturing PMIs were sending mixed messages in November. While both stayed in contractionary territory, the Caixin increased while the NBS declined to its lowest level since August 2012. The month-on-month bounce in imports data for November and the better than expected inflation numbers do bode well for IP growth to halt its decline in November.
For investors, a slight increase in IP and retail sales will be taken as a positive, even if fixed asset investment continues to decline. Such results, if they can continue into December, should be enough to see China achieve their 7% GDP growth target, at least in the official figures.
Australia
The ASX has been edging back between positive and negative territory today. After some gains in the morning, the 0.2% weakening of the CNY fix pushed it back into negative territory. Nonetheless, the index held firm above the 5000 mark. While the global macro environment is very challenging at the moment, there does not look to be a compelling reason to see the ASX selloff substantially below the 5000 mark. The global outlook has improved markedly since the August/September selloff when this last happened. The hope is that the Fed rate hike next week will finally end the uncertainty bringing some much needed stability to equities that could see them perform well into January.
The banks have very much taken the pulse of the index today as they flitted between positive and negative territory. At Westpac’s AGM today, CEO Brian Hartzer lashed out at the regulators’ overemphasis on higher capital requirements stating that they come at a cost to shareholders. On the positive side, the snapshot of earnings did not scare investors away. Even though their performance as a whole was relatively unremarkable, clearly there were quite a lot of investors willing to pick up the high yielding Big Four at these valuations.
The further 1.4% decline in the iron ore price overnight looked to be weighing on the big miners today with BHP (N:BHP) losing 1.7% today. The rebound in the dollar index also hurt the materials sector as whole as it decline 0.6%.