Asia Close: A Tale of Two Cities

Chinese and Asian regional equities continued to diverge today with currencies almost unchanged and oil continuing to ease after last nights sell-off.

Equities

It could be further easing by China to provide stimulus to the economy, possibly continuing tomorrow with the one and five-year Loan Prime Rate. Perhaps it is semi-official interest propping up China and Hong Kong stock markets? Or it may be investors who are selling regional Asia and buying China, anticipating the basis to close after Hong Kong’s sell-off last week. Whatever the reason, Asian stocks this week continue to confuse and diverge in price.

The Nikkei 225 fell 0.53%, the Kospi fell 0.44%, Jakarta fell 0.88%, and Singapore fell 0.58%. Meanwhile, Taiwan rallied 0.49%, and Hong Kong rallied an impressive 1.46%. Over on the mainland, the Shcomp rose 0.58%, and the CSI 300 rose 1.11%, continuing the divergence between Greater China and the rest of Asia this week.

My thoughts are that investors are playing the basis between China and the rest of Asia, with the Hang Seng in particular underperforming of late. Thus selling Asia and buying Greater China, anticipating the basis between the two will close up.

European shares are off to a bright start as are US index futures as the street seems to have gotten over its trade jitters triggered by a negative CNBC article overnight on the state of the US-China trade negotiations. The data calendar is incredibly light overall in both Europe and the US meaning trade sentiment will continue to rule the roost.

Tonight’s first UK leader’s debate between PM Boris Johnson and Labour’s Jeremy Corbyn should provide a welcome distraction from a market that appears to be suffering trade negotiation fatigue.

FX

Currencies are refusing to join the swings in trade sentiment, preferring to wait for more concrete details, should they ever appear. The dollar has lost ground against the majors though as trade sentiment amongst the forex community has waned in recent days. Currencies had a quiet session in Asia is almost unchanged. The EUR/USD is at 1.1070, GBP/USD at 1.2965, USD/JPY at 108.70 and USD/CHF at 0.9930, pretty much their opening levels this morning. Even USD/CNH is basically unchanged at 7.0265.

Oil

Crude oil continued its overnight sell-off in Asia today. Brent crude has fallen 0.30% to $62.15 a barrel, and WTI has slipped 0.25% to $56.65 a barrel. The continued divergence between oil and equities should be a warning shot across the bows of stock markets, which appear to be far into the realms of hope versus reality on trade. That said markets can always remain irrational longer than you can stay solvent.

Gold

Gold traders hardly needed to take their feet off the desk today with gold almost unchanged at $1470.00 an ounce. Gold will take its lead from the other markets in the New York session with $1480.00 remaining formidable technical resistance.

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