Asia’s Morning: Feasting On Leftovers

The US was closed overnight for the Thanksgiving holiday; meaning markets were effectively left with scraps to feast on, making for a quiet session. While the Americans ponder the different ways one can consume left-over turkey, I made a curry once; one significant event did occur overnight.

Having signed the Hong Kong bill into law on Wednesday evening, the American President did what any sensible person should do when you have seriously upset China; jump on a plane to Afghanistan. President Trump’s surprise visit to American troops in Kabul was accompanied by the announcement that talks with the Taliban had resumed and that they were close to a “deal.”

The significance, if true, could have profound consequences for the 2020 Presidential elections. If President Trump can effectively end America’s longest war, on paper at least, a solution that eluded Presidents Bush and Obama, it would potentially play out even better than a Sino-US trade deal with voters. You heard it here first folks.

With the initial displeasure from China over the US Hong Kong law torpedoing yesterdays nascent rally on Asia equity markets, the region was set for a cautiously bullish start today. That hope has been clouded; as both South Korean and Japanese Industrial Production data, this morning has come in far below expectations. South Korean Ind. Prod. fell 1.70% MoM versus 0.10% expected. Japanese Ind. Prod. fell a huge 4.2% MoM versus an expected drop of 2.10%. The annual drops, -2.50% for South Korea, and – 7.40% for Japan, make for ugly reading. It suggests the US-China trade dispute continues taking its toll on Asian economies, despite signs of some green shoots.

South Korea’s official interest rate announcement at 0900 SGT will now assume a more considerable significance. Officials will be intensely aware that another cut could weaken the Korean Won, potentially drawing President Trump’s trade ire. Most likely, the central bank will hold, preferring to wait-and-see like so many of its global peers. However, it will probably signal that it stands ready to ease further if necessary, in a coordinated effort with the government from the fiscal side.

China’s threats yesterday to retaliate over the US Hong Kong law will probably remain just that; threats. China has its own issues, especially around corporate debt and regional bank credit quality. It can ill-afford to waste any progress so far, especially if the US President is freshly emboldened with a policy win in Afghanistan. Pragmatism should overcome anger.

Vietnamese industrial production is released at 1000 SGT today with an expected rise of 9.20% YoY. The data should reveal whether Vietnam, along with Thailand, continues to be the alleged beneficiaries from the movement of production out of China. A weak reading could puncture that balloon and suggest the optimism from earlier in the week; the author included, was premature.

After engorging themselves on left-over turkey, American’s head to the shops today for the Black Friday sales. It marks the start of the critical holiday buying season for retailers, with the amount of anarchy shown by consumers at shopping malls, being closely watched by the markets as an early indicator to the health of the US consumer. Online shopping data will be monitored closely as well, but it is much more fun watching people fight over half-price 80-inch flat screen tv, and then try to load it into a standard-sized shopping trolley. A David Attenborough wildlife documentary featuring hunting lions has nothing on Black Friday.

Equities

With US markets closed, Asian equities have made a cautious start after weak Industrial Production data from South Korea and Japan. The Nikkei 225 is higher by 0.25%, but the South Korean Kospi has slipped by 0.15%. The Australian ASX 200 is flat, but early indications suggest the Hang Seng and Straits Times Indices will be slightly negative in early trading.

Trading will be muted in Asia as we near the end of the week. Regional markets enthusiasm is likely to be tempered by worries that China will announce some sort of retaliation over the US Hong Kong law.

Currencies

Currency markets went into a deep freeze overnight with the US on holiday. They have started in much the same tone in Asia this morning. The Chilean Peso hit another record low overnight with the central bank intervening to support it. With much of LATAM under pressure, the fall-out continues to be localised to that geographical region as emerging markets in Asia remain much more sensitive to US-China trade.

The British Pound gave back some of its gains overnight, falling to 1.2910 in London trading. Although by far the most volatile G-7 currency at the moment, GBP remains locked in a 1.2800/1.3000 range overall.

Oil

Oil markets were closed in North America, with Brent crude steady at $64.00 a barrel and WTI unchanged around $58.00 a barrel. OPEC+ overnight signalled its intent to extend their production cuts at their meeting next week, but this had no impact on even oil futures markets.

Much like an interim US-China trade deal, maintaining the OPEC+ cuts at present levels merely maintains the status quo and keeps the lights on. OPEC+ will need to surprise us with an increase in production cuts to spur any short-term price increases, otherwise black gold remains at the mercy of daily sentiment swings on trade negotiations.

Gold

Gold rose slightly overnight to $1456.00 an ounce, with futures activity muted by the US holiday. Gold has edged higher to $1456.50 in the early Asian session, but investors attention appears to be well and truly focused elsewhere.

The $1445.00 and $1463.00 an ounce regions remain initial support and resistance for gold.

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