Prepared by Jeff Halley, Senior Market Analyst
Asia learns its Alphabet
Data from Taiwan, Singapore and Vietnam showed a slight improvement yesterday as the region’s equity markets enjoyed a mildly positive session. Wall Street continued its march higher with the Nasdaq and S&P tiptoeing to record closes again. Even Turkey’s economic confidence indicator rebounded more than expected, showing you can’t keep a good man down. European business confidence data, of course, disappointed, signalling yet another nail in the economic coffin for the single-currency region. If I were to look for a positive, it would be at least performance in the European Union (EU) has been consistent, for all the wrong reasons.
US consumer spending rebounded, but core PCE inflation remained stubbornly anchored, printing up 1.7% versus an expected 1.8%. Still, the Federal Reserve can take some comfort in the fact that at least the US has some inflation, which remains an elusive and rare commodity in so many developed markets. The FOMC begins its two-day meeting today, and while the PCE print was a slight miss, it’s unlikely to make the Federal Reserve waiver from its wait-and-see stance.
The PCE inflation data did bring the dollar’s upward trajectory to a gentle halt against the major currencies overnight, however, this respite will likely be temporary. The markets have likely been spooked by the Alphabet – Google’s parent company – earnings report. Revenues increased, but the pace of growth fell to a mere 17%, which is less than the street expected. The rising US dollar also impacted earnings, and this may be a story we see more of later in the year. Alphabet’s shares collapsed 7% in after-market trading. Apple releases its Q1 earnings after the close tonight, and the results will take on a greater sense of urgency with straw that broke the camel’s back coming to mind.
South Korea’s business confidence and industrial production data rebounded this morning, month on month. Combined with yesterday’s regional data prints, this suggests a nascent recovery by Asia that is coat-tailing on China’s climb back off the canvas, as well as hopes of an imminent US-China trade deal. China releases Manufacturing and Non-Manufacturing PMIs at 9am Singapore, which will undoubtedly set the tone for the Asian session. Of the two, the manufacturing data will carry more weight, with the street looking for a 50.5 print. A print below 50 would set alarm bells ringing across Asia.
Japan is on holiday for the rest of the week and will be joined by China from tomorrow, along with much of the region.
The US dollar weakened across the board with the euro (EUR) rising 0.3% to end just shy of 1.1200 yesterday. The sell-off against the rest of the majors was tepid at best and should be taken with a grain of salt as sentiment will likely flip-flop daily with such a heavy week of economic releases.
Assuming no surprises from China though, regional currencies could outperform today as inflation stays benign in the US and data implies that a nascent recovery is underway in Asia, ex China.
Alphabet’s missed revenue and subsequent after-hours sell-off will undo most of Wall Street’s good work overnight. China shares surged initially yesterday but then fell, closing just slightly higher at session’s end. China’s main indices seem hesitant to follow Wall Street’s lead at the moment, implying a lot of good news is built into prices at these levels.
With Alphabet weighing on regional markets, the China PMI data will we the key event today. A poor print could see a mass exodus by investors ahead of a holiday-shortened week in Asia. Conversely, a decent print could result in a very loud collective sigh of relief by regional stock markets and focus attention back onto the Federal Reserve and Apple’s results tonight.
Oil stayed out of the limelight overnight following the Trump-induced sell-off on Friday. Both major contracts have made a decent correction lower, and oil seems content to consolidate and adopt a wait-and-see attitude for now. Brent Crude closed almost unchanged at USD72.00 a barrel while WTI edged out a minor 0.60% gain, rising to USD63.70 a barrel.
Barring a surprise from China – and with so many holidays rapidly approaching in Asia – regional oil trading is expected to be quiet today.
Gold continues to trade aimlessly on daily sentiment. Improved US data overnight offset a weaker dollar and saw the yellow metal fall USD5 to USD1,280.00 an ounce. Gold continues to bounce around on the nuances of other markets although, and with the Labour Day holidays in Asia upon us, it should find support on dips this morning as traders hedge risk over the next week.
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