Alibaba’s (NYSE:BABA) Singles Day is off to a roaring start with the first billion dollars of turnover achieved in just one hour. For those of you not familiar with singles day, it is not an international swipe right dating phenomenon, although its origins do lie in being single. Instead, Alibaba created it as a one-day online shopping frenzy whose popularity has climbed exponentially both in China and also the rest of Asia.
Singles Day is being held up as a bellwether of Chinese consumers’ willingness to spend in the face of a domestic slowdown. China’s retail sales are released on Wednesday and are undoubtedly the region's data highlight along with industrial production. I would argue though that deeply discounting prices always brings consumers out to play, no matter how bad the economy might be.
On a darker note, the news is coming in that Hong Kong police have fired live ammunition at protestors this morning and that someone has been shot. A logical outcome when live ammunition is used, but a sharp escalation in political temperature, as the weekend protests spilt over into more and more destructive demonstrations today. The Hang Seng is unlikely to take this worrying news well, coming after Chinese officials berated Hong Kong over the weekend for not enacting security lawes and crushing dissent.
Regionally, Asia’s day is quiet on the data front with only Malaysian Industrial Production (1.90% exp) and China Vehicle Sales early this morning. U.S. bond markets are closed today for Veterans Day, but currency and equity markets are open. The partial holiday though will likely mute activity in Asia today.
This week’s data calendar is relatively light in Asia with mostly tier-2 data releases. Highlights will be Wednesday’s RBNZ rate decision with the market at 50/50 as to whether New Zealand’s interest rates are cut further into record low territory. China releases Retail Sales and Industrial Production on Thursday morning just after Australia Westpac Consumer Confidence. The week is rounded out by U.S. Retail Sales and Industrial Production on Friday.
Therefore, it will be the U.S.-China trade talks that will continue to dictate the daily swings in sentiment this week. I take some pleasure in being deep into my morning note before saying “trade-talks,” as it is starting to drag on in a disturbingly Brexit-like manner. That was three years ago, and I would rather be ironing out creases with a new steam pressure iron than face a similar timetable with U.S.-China trade.
The Presidential election next year should, on paper, ensure this does not happen.
All three major Wall Street indices closed at or near record highs on Friday, despite President Trump stating that no trade deal has been done yet, that he hadn’t agreed to roll back tariffs, and China needed a deal more than the U.S. Who needs it more than the other is semantics.
I didn’t need a steam pressure iron, but thanks to an Alibaba-driven 50% discount, I decided I did. What matters is getting some sort of interim trade deal across the line for both sides. President Trump’s comments sounded more like a negotiating tactic than an actual threat, and Wall Street seemed to agree. Equities refused to back off, and the rotation out of haven trades continued apace.
Equities
Wall Street continued it’s rally on Friday, despite U.S. Treasury yields continuing to rise, making for somewhat counterintuitive price action. If nothing else, it emphasises yet again, that the trajectory of U.S.-China trade relations, remains the only game in town for global markets, and everything else is strictly b-team.
The S&P 500 and NASDAQ rose 0.27% to close at record highs. The Dow Jones Industrial Average rose 0.66% and is within 100 points of its all-time highs as well.
Disappointing Japan Machinery Orders, which fell 2.90% MoM, has taken the wind out of the sails of the Nikkei 225, which is flat on the day. The KOSPI has declined 0.70% with the Straits Times also lower by 0.45%. The Shanghai Composite has also fallen by 1.10%.
Hong Kong’s Hang Seng, which has collapsed by 1.75% as the protests there dangerously escalate, is the culprit behind Asia’s sell-off. It is a reflection of the increased fears of direct mainland intervention in the territory. That fear will hang over regional markets this morning, although its effect may be limited time-wise, as long as the trade talks stay on target.
Currencies
The divergence of the U.S. dollar between developed and developing markets continued on Friday. The dollar index continued to rise, up 0.20% to 98.15, as the JPY, CHF, GBP and euro all gave ground to the greenback as U.S. Treasury yields powered higher.
Developing market currencies though, continued to progress higher against the dollar, being the primary beneficiaries potentially, of an interim U.S.-China trade deal. That trend is set to continue until the U.S. Treasury yield differential makes a too compelling argument to ignore. Today is not that day, though.
Latam currencies may come under pressure later today following the weekend resignation of the strongman Bolivian President Evo Morales, following post-election protests. People’s power is alive and well in South America at the moment, as a casual glance at Ecuador, Brazil, Chile and Argentina will also tell you.
The USD/CNH has risen to 7.0060 this morning as regional stock markets take fright at the violence in Hong Kong. Although the greenback has dropped recently versus local currencies, Hong Kong fears will see regional FX on the back foot this morning.
Oil
The positive trade noises from both sides, saw oil’s global recovery rally continue on Friday, albeit at a less frenzied pace. Brent crude rose 0.50% to $62.85 a barrel and WTI rose 0.60% to $57.40 a barrel. Both contracts remain in their uptrends with resistance in Brent at $66.00 and WTI at $58.00 a barrel.
The Hong Kong protests have seen a knee-jerk rotation out of risk positioning this morning, and both Brent and WTI have suffered, dropping 1.05% to $62.30 and $56.80 respectively. The effects are more likely to be passing than permanent. They may persist into tomorrow’s session though, with volumes likely constrained in the U.S. due to the Veteran’s Day partial holiday.
Gold
Gold’s sell-off continued on Friday as investors continued rotating out of haven trades and into more risk-seeking positioning as trade talks continued. Gold fell 0.65% $1459.00 an ounce, just below critical daily support at $1460.00.
Gold longs have been given a partial amnesty this morning as Hong Kong tensions flare and seeing regional investors hedge risk by buying gold. The rally is minuscule though, a rise of four dollars to $1463.00 an ounce.
Golds next technical support are at $1450.00 after which the charts open wide until $1400.00 an ounce. The small rally today looks forced and lacks momentum suggesting that as long as U.S.-China trade negotiation stays on track, the path of least resistance for gold will continue to be the downhill one.