Equities Shrug
The US holiday today means it has been a relatively quiet start to the week. The was some focus this morning on the PBoC's MLF operation. The 10bp rate cut was in line with expectations, but the amount (~CNY200 bn) was lower than the expected ~CNY500 bn. While USD-downside interest in EM/Asia has resumed, though little traded.
The market is shrugging off reports the US administration is considering halting deliveries of jet engines co-produced by GE/Safran for a new aircraft being developed in China, as well as an increase in tariffs on aircraft imported from the European Union to 15% from 10%. Indeed, investors continue to show remarkable resilience to concerns on supply chain disruption from coronavirus. Hang Seng is broadly tracking CSI300 (which is up 3%) – now higher than pre-Chinese New Year closure. The Market is taking comfort that critical cases in Wuhan fell, although the quarantine area extends in China.
However, Japan was weaker after a shockingly poor Q4 GDP print, but it seems the market is taking comfort in a likely government fiscal backstop.
E-minis remained supported throughout Asia as investors ponder the fiscal boost from possible tax cuts as the Whitehouse considers tax incentives to encourage more Americans to buy stock. While at the same time, the President is pondering a 10 % middle-class tax cut as his election run sweetener.
Asia FX: Lower Volumes
EMFX Asia vols have drifted lower with spot traded in confined ranges and no significant events ahead. It seems like vols will continue to trade offered barring any significant headlines, given that realized vol is safely below implied across the board. While Trader continues to favor FX carry structures vs. FX growth Asia. But as was the case early last week, deep pocket funds continue to position for a post-coronavirus outbreak rebound in manufacturing driving USD/CNH sub 6.98
The SGX forwards market is unusually quiet ahead of tomorrow's budget release (1500 SGT / 0700 GMT). On the curve, prices are either wide or without bids. On a significantly large budget delivery, 6m-1y SGD FX could come under intense selling pressure.
Oil Markets: Wait And See Mode
Oil markets are flat in Asia in part due to the US holiday effects mainly because oil traders are in a wait and see mode. Markets are being held hostage by Russia, not playing ball with JTC production cut recommendation. The virus still weighs on oil demand expectations, with OPEC, the EIA, and the IEA all cutting 2020 estimates, but the view that OPEC+ will likely deepen production cuts seems now to be providing some support
Gold Unwinds
The gold market continues to unwind weekend hedges as the US long weekend effect was probably commensurately more bullish for gold than would otherwise be the case.
But with risk trading benign in Asia, Covid 19 hedges continue to reduce getting nudged along by the same fast money traders that were evident all last week. Gold appears to be stuck in no man's land for now mired in the $1560-1590 range, with trading volumes somewhat depressed since the beginning of the year. Still, gold is very much on everyone's radar, which suggests bids will remain firm on dips to $ 1575-65 levels even more so as there are now more cuts priced for the Fed than any other central bank.