Middle East fears faded further from the memories of investors overnight, with haven assets weakening yet again and equities resuming their relentless grind higher. US data passed without incident with Initial Jobless Claims easing by a slightly lower than expected 214.000. German data was mixed, the Current Account rising to Eur 24.9 billion, but Exports falling a seasonally adjusted 2.3% in November. That was enough to push the Euro lower by 40 points against the dollar to 1.1110 overnight.
Australian Retail Sales outperformed this morning, rising 0.90% in November, above the 0.40% consensus. The effect on the currency was minimal though, as heavily discounted Black Friday sales drove the numbers. The street is preferring to focus on the economic fall-out from the Australian bushfire crisis.
Asia has a quiet day ahead now on the data from, with only Malaysian Industrial Production of passing interest. Focus instead, will turn to this evening’s US Non-Farm Payrolls, with the street expecting a rise of 164,000 jobs. That is less than the blow-out 266,000 print last month but still confirms that the US economy is in rude health, when compared to most of its developed market peers.
Taiwan goes to the polls this weekend and could be a source of volatility on Monday morning. The incumbent President Tsai Ing-wen leads the polls, but her far more liberal and independent platform could raise Beijiings ire if she were to win strongly. Beijing regards Taiwan as a rogue province and has previously threatened to invade if Taiwan made moves toward formal independence. Her challenger, Han Kuo-yu, is much more Beijing aligned.
Equities
Wall Street rose again overnight, the S&P 500 climbing 0.67%, the Nasdaq jumping 0.81% and the Dow Jones rising 0.74%. All three major indices marking out fresh record high closing prices. Geopolitical variables aside, only a sub 125,000 Non-Farm Payrolls print is likely to knock the wind out of Wall Street’s sails at this stage.
After rallying strongly yesterday after the US-Iran de-escalation, Asia has got off to a more muted, but still positive start this morning. The Nikkei 225 is up 0.30%, the Kospi by 0.60% and the Shanghai Comp by 0.40%. The Australian All Ords has risen by 0.50% with the STI climbing 0.10%.
Ahead of the US data, and with one eye on potential weekend risks in the Middle East, Asia is likely to remain positive but cautious today with the best of the day’s gain likely already behind us.
Currencies
The EUR/USD sank to 1.1110 overnight as German Factory Output disappointed. The rotation out of haven positioning continued unabated, the Japanese Yen falling once again. USD/JPY rose 0.40% to 109.55, just below 7-month resistance at 109.75. A continuation of the equities rally tonight sets up USD/JPY for a test of 110.00 early next week.
The USD was mostly stronger overnight, the dollar index rising 0.15% to 97.44. The greenback was boosted by continuing strong demand for US Treasuries, with the overnight 30-year issue heavily oversubscribed.
The confidence of the equity markets has not yet translated into a strong recovery rally in the emerging market currency space. Perhaps wary of weekend event risk, emerging markets were mostly unchanged against the greenback. We would expect this situation to continue amongst regional Asian currencies today.
Taiwan’s election this weekend has the potential to send shivers through Asia’s NDF markets on Monday, depending on the level of Mainland China rhetoric after the result.
Oil
Oil has a quiet session overnight after a tumultuous week. Brent crude was flat at $65.50 a barrel and WTI was almost unchanged at $59.70 a barrel.
Both contracts have eased this morning in Asia with Brent slipping 20 cents to 465.30 a barrel, and WTI falling 40 cents to $59.30 a barrel. The downside on both contracts is likely to be limited in Asia as traders keep one eye on potential weekend geopolitical risk. A quiet weekend could see selling pressure resume in earnest on oil next week though.
Gold
Gold’s haven-charged unwind continued overnight, albeit at a more civilised pace. Gold fell 0.40% to $1551.75 an ounce having traded as low as $1541.00 in the overnight session.
Gold remains on the back foot in Asia, falling nearly seven dollars to $1545.00 an ounce today as traders price out the geopolitical risk in precious metals. The overnight low at $1541.00 is initial technical support, and I would expect to see weekend risk hedging interest to emerge in that area. A break of $1540.00 implies that a deeper correction to $1520.00 could occur.
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Jeffrey Halley
Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
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