Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Ill-Omened Mix Of Headlines Confronting Asian Investors

Published 04/27/2022, 12:08 AM
Updated 07/09/2023, 06:31 AM

It's not easy to imagine a more ill-omened mix of headlines confronting Asian investors as they grabbed their first cup of coffee this morning.

As a massive tech rout fought for space above the fold with news that Moscow cut gas flows to Poland and Bulgaria while Sergei Lavrov warned of the threat of nuclear war.

Cutting gas flows was not new news, but it was the timing of Russia plugging the gas flows when stagflationary fears have been running rampant again.

I would expect more dominoes to fall throughout Europe and for Russia to continue to shut down the supply to those refusing to pay for Russian gas in rubles and those providing substantial support to the Ukrainian resistance effort, like UK PM Boris Johnson, now Public Enemy No 1 among Kremlin supporters. 

And while Russia cutting off gas supplies to Europe would cheat Brussels of a sanctions weapon, it would also go a long way toward depleting whatever was left of Moscow's leverage. Once Putin cuts off the gas flows, there is not much left except nuclear blackmail. 

Combined with the trepidation of more lockdowns in China and everything that entailed for a global economy trying desperately to sidestep the stagflationary event horizon, it undercut risk sentiment dramatically on Wall Street.

US tech shares fell 4% Tuesday, in one of the worst sessions of a lousy year. 

Oil

Oil has been supported via the escalation of geopolitical tensions with Russia starting to cut off EU gas supplies. And this was just the beginning, so oil could remain supported as the EU pulls the plug on gas supplies in a domino effect across the continent. 

And, of course, the offset was China lockdowns with the oil market desperately trying to skirt those recession storm clouds building on the horizon.

Gold

Gold found a bid due to the ratcheting up of geopolitical tensions; still, bullion was playing a secondary role to the US dollar, capturing the lion's share of safe-haven flows.

The sharp selloff in equities also weighed on gold as stocks were typically used as a source of liquidity to buy gold.

Asia Forex

USD/CNH turned bid after yesterday's fix was interpreted as slowing the selloff rather than drawing a line in the sand.

The consolidation in CNH below 6.60 may also relate to the upcoming Bank of Japan decision, given that CNH/JPY at 20.00 appeared to have been a trigger for CNH's weakness.

While no change was expected from the BoJ, event weight had built significantly, which could be due to fears of a shift in YCC or expectations that unchanged policy would lead to a further leg higher for USD/JPY.

The 1w risk reversal turned sharply bid for USD puts since it rolled over the date, so protection was being sought against USD/JPY longs, if the BoJ tightens or delivers a hawkish message.

THB

USD/THB took another leg higher, reaching 34.29, the highest level since May 2017. Factors weighing on the pair continued to be monetary policy divergence, no sign of reprieve from China's lockdown policies weighing on tourism, along with seasonal factors such as dividend flows that last through May

It did not appear China would adjust the current COVID policy soon, which meant the local Tourism industry might as well write off 2022 for Chinese tourists which were usually 1/3 of the country's visitors. So long as the structural tourism drag persists, it negatively affects THB's current account forecast. 

The lack of Bank of Thailand pushback suggested they did not mind the weaker THB from a competitive devaluation perspective. So long as the yuan continues to weaken, we could see USD/THB grind higher.

MYR 

Similarly, I expect the MYR to trade very defensively given the protracted lockdown in China and the worsening economic contagion effect that could spread through China proxies. With the yuan weakening, I would not expect the BNM to try to defend the ringgit. 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.