Improved PMI data from the United States continued to confound the skeptics as the economy appears to continue to swim strongly, saving Wall Street from the malaise that struck Asia and particularly, European stocks yesterday. Actually, it is more of a doggy paddle than a Phelps-like sprint, but it is a lot better then the Davy Jones Locker looks to the European composite PMI’s, which made grim reading for the Eurozone.
There seems to be a constant procession of data now, suggesting a slowing global economy is being exacerbated by the overspill from the Sino-U.S. trade war. Japan's Jibun Bank Composite PMI, released this morning, slid to 51.5 from 51.9 previously and Thailand Industrial Production is expected to show a slide of 3.60%.
One bright note, if you can call it that, is that last Friday’s Iowa and Montana farm visits by the Chinese trade delegation were in fact, called off by the Americans and not the Chinese themselves. The reason is still unknown. Maybe Mr Mnuchin was worried about the delegates suffering from agoraphobia (fear of open spaces).
Whatever the reason, Asia may find this news comforting in that it does not appear to be related to tensions within the pre-negotiations team on both sides.
Indonesia should be on readers radar today with student protests outside Parliament continuing unabated overnight and this morning. They are protesting against a draconian new penal code and a weakening of the anti-corruption investigation department's powers. An attempt to pull down the gates of Parliament and enter last night was repulsed, but the protestors remain.
Combined with renewed riots in West Papua and out of control, illegally set fires, dumping smog over most of the region, it suggests all is not well in the corridors of power in Jakarta. Given the dampening effects that the Hong Kong protests have had ion the Hang Seng, it is not an unreasonable conclusion to think the same results may be felt on the local exchange and perhaps the IDR.
Swinging back to Europe, the German IFO Business Climate release today will be monitored closely by the markets following yesterday's dismal PMI’s. A downside miss from the expected 94.5 print could increase the negative pressure on European equities and the euro. The ECB’s monetary bazooka appears to have been fired in the nick of time.
Equities
The S&P 500, NASDAQ and Dow Jones all finished mostly flat overnight, lifted by the decent U.S. PMI print following a dour session in Asia and Europe. With Japan back from holiday we can expect more activity in Asia today, and early indications are that Asia has taken solace from Wall Street holding its ground overnight.
The Nikkei 225 is 0.35% higher, and the S&P/ASX 200 is 0.10% higher.Asian equities should remain cautiously optimistic today as the U.S. continues to keep its head above water as the global consumer of last resort. The fact that the Chinese didn’t cancel last Friday’s farm visits in the U.S. will be a huge sigh of relief for regional markets, and its effect should not be underestimated with trading today.
Indian stock markets rallied nearly 10% in the last two sessions on giant corporate cuts and could be due for catching of breath and some profit-taking later today.
Currencies
Currency markets were quiet overnight after the initial sell-off in the euro post the dismal Eurozone PMI readings. The euro itself is still stuck under 1.1000 at 1.0990 this morning. Ahead of the German IFO this afternoon; it is hard to see the single currency finding many friends. 1.0925 is critical technical support in the near-term.
Expect fireworks on the British pound (GBP) this afternoon with the U.K. Supreme Court due to release its ruling on the pro-rouging of Parliament this morning U.K. time. I won’t attempt to second-guess the court, just note that whatever the verdict is, there is a high chance of a 100 point move either way. Traders should probably have light exposure into the decision or deep pockets and a low resting pulse rate. GBP is trading at 1.2430 this morning with technical support at 1.2400.
Asian currencies will find comfort in the farm visit news with vistas over potato and soybean fields and chicken coups probably never carrying so much weight with financial markets. The Indonesian rupiah (IDR) may underperform due to political tensions.
Oil
Oil traded in a wide range overnight in a noisy session. Falling after the European data on global slowdown fears, only to rally on the U.S. data and a Reuters report that Saudi Arabia had restored 75% of its lost production.
The Street appears to be taking the Saudi Arabia recovery with a large grain of salt though. As the dust settled in New York, both Brent and WTI finished the day with modest gains. Brent crude rose 0.10% to $64.50 a barrel, and WTI rose 0.30% to $58.35 a barrel.
The closing figures belie an extremely volatile intra-day range, however, with more short-term positioning choppings than a Halloween movie. Asian oil traders are unlikely to stick their heads above the parapet too far today, being content instead to watch events play out in other time zones.
Treasury Secretary Mnuchin has said on Fox News, that trade talks will resume in two weeks and may add some support to crude on trade hopes.
Gold
Gold leapt 12 dollars to a high of $1526.00 an ounce overnight, before settling around $1521.00 as New York ended. It capped another excellent performance for the yellow metal as it benefitted from falling bond yields and global economic uncertainty.
The performance of gold over the past few days is perhaps a microcosm of what we would see if U.S.-China trade talks were to break down irretrievably.
Technical resistance in the $1525.00 an ounce region held overnight confirming that gold remains in a broader $1480.00 to $1525.00 range. From a technical standpoint, I would require one, preferably two closes above $1525.00 to confirm that a new higher trading range had been set, and we were not walking into a bull trap.