Risk off as US Senate passes Hong Kong bill

 

The US Senate passed its Hong Kong Human Rights and Democracy Act after the market close last night, prompting retaliatory comments from both Hong Kong and China today resulting in a risk-off feel to trading during the Asian session.

 

Hong Kong says stop meddling

In response to the US Senate passing the bill, the Hong Kong government came out and said it was ungrounded and unnecessary, adding that foreign governments should not interfere in internal affairs.

The response from China was similar in nature, with the Chinese foreign ministry reiterating that it will retaliate if the bill is passed and urged the US to take measures to stop it. Nothing was mentioned about what form this retaliation might take, but markets are assuming that the Phase 1 trade negotiations could be a target.

Equity markets were beaten lower by the developments, with US indices dropping between 0.19% and 0.29%. The biggest under-performer was the Australia200 index, which slumped 0.72% amid weakness in the financial sector, led by Westpac. China shares lost 0.33% while the Hong Kong index dropped 0.54%.

The risk-averse strategy was also evident in the currency space, with the risk-beta Australian dollar falling 0.21% versus the US dollar and 0.28% versus the Japanese yen. USD/JPY fell 0.06% to 108.47, and could test the 55-day moving average at 108.19. That moving average has supported prices since October 10.

 

USD/JPY Daily Chart

Source: OANDA fxTrade

 

China cuts prime lending rate

In a widely anticipated move, the People’s Bank of China cut its prime lending rate by 5 bps for both the one-year and five-year tenors. The one-year rate was reduced to 4.15% while the five-year was trimmed to 4.80%. The move comes in the wake of China cutting its seven-day reverse repo rate by 5 bps on Monday.

The move had little impact on sentiment, with the drivers mentioned above carrying a greater weight. USD/CNH rose 0.11% to 7.0354 and is now within sniffing distance of the 100-day moving average at 7.0428, which has capped prices on a closing basis for two weeks.

 

USD/CNH Daily Chart

Source: OANDA fxTrade

 

FOMC minutes on tap

The highlight for the US calendar today will no doubt be the release of the minutes of the last FOMC meeting held on October 30 where the Fed cut rates by 25 bps. The message afterwards was that it was likely the last cut for a while unless the situation deteriorates rapidly. We’ll gain more insight about the discussions when the minutes are released.

Other than the minutes, it’s another quiet session on the data front with Europe focusing on the Bank of England’s inflation report hearings and German PPI data for October. Canada’s inflation numbers for October are also due along with a speech from ECB’s Lane.

 

The full MarketPulse data calendar can be found at https://www.marketpulse.com/economic-events/

 

Craig Erlam, senior market analyst at OANDA, tells us why the Royal Mint in London is destroying one million Brexit coins. We’re hearing of this on the same day that big money promises continue to be made in the U.K. election campaign and Tory and Labour Party leaders prepare for a televised debate.

 

Source: OANDA fxTrade

 

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.
Andrew Robinson

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