Asia Morning Session: You’ve Been, Thunderstruck

Monday is off to a lively start, with the reopening of China’s capital markets reopen after an extended Chinese New Year break, as authorities there attempt to control the spread of the Wuhan virus. Despite a circa $22 billion injection of cash and shaving 10 basis points off the 7 and 14-day repo rates by the PBOC this morning, Chinese mainland markets look thunderstruck.

Investors have taken a shoot to thrill approach, with the CSI 300 and Shanghai Composite Indices falling 9.0% on opening, before recovering slightly to post losses of 7.50% after 30 minutes of trading. Half an hour earlier, commodities exchanges opened in China with important benchmarks in oil, rubber, iron ore and copper, amongst a slew of others, immediately falling limit down by 5.0%. Limit down may well be a two-word expletive we hear throughout the day in Asia, with both Chinese and regional Asian markets unlikely to be back in black anytime soon.

Over in currency markets, the PBOC put a brave face on proceedings, setting the onshore Yuan fix at a much stronger than expected rate of 6.9239. That was below the latest pre-holiday fixing at 6.9368. Currency markets are having none of it though, with both the onshore CNY and offshore CNH were both trading around 6.9900 to the dollar earlier in the session.

China’s financial authorities appear to be walking the razor’s edge this morning in the face of a global panic over the Wuhan virus, and its potential effects on China and global growth. Rather than drawing lines in the sand for waves of sellers to crash against, they appear to have taken a leaf from Bruce Lee, always a sound strategy. Be the bamboo or willow tree that bends in the wind, rather than the stiffest tree that easily cracks. Expect the “national team” of state-owned investment managers to be deployed in the stock markets once the initial waves have passed, to try and stabilise things. We can also expect more direct action from the PBOC and other Chinese authorities in the days to come if necessary.

No amount of bending in the wind though is likely to contain the panic surrounding the Wuhan virus though. Asian stock markets have already followed China into the red following that bastion of peak optimism, Wall Street, capitulating on Friday. The self-perpetuating negative feedback curve on global growth that I have mentioned previously, is in full swing, as country after country closes its borders to Chinese citizens and more airlines stop flying to the Mainland internationally. Over half of China’s provinces have now themselves, extended the New Year break by another week, to help control the potential spread of the virus.

The noise around the Wuhan virus has seen the world choose paranoia over precaution, drowning out what would otherwise have been a busy week for the world on the data front. The knock-on effects in globally intertwined supply lines were there to see this morning, China’s Caixin Manufacturing PMI for January easing slightly to 51.1. We would expect that reading to worsen substantially in February, as Wuhan virus aside, the data would have been skewed by the Chinese New Year break anyway. The rest of Asia presented a mixed bag with the Markit Manufacturing PMI’s in Taiwan and Philippines printing slightly higher, but the rest of Asia, notably Indonesia and ominously, Japan’s Jibun PMI all slumping.

Several central banks have rate decisions this week, notably India and Australia with the week culminating in with the US Non-Farm Payrolls. The Reserve Bank of India will almost certainly have to ease this week after the onshore stock market poorly received Saturday’s Federal Budget. Personal income taxes were slashed – although I believe only 5.0% of India’s population actually pay them – and the Federal deficit will increase through higher borrowing. With prices rising but growth falling, the last thing the central bank probably wants to do is cut rates in a stagflationary environment. Their hands are likely tied though after stocks fell sharply on Saturday. An inevitable second wave of sellers of India stocks, currency and bonds are likely to arrive this afternoon, following the ructions in Asia this morning.

Overall, equity, energy and commodity markets will remain under intense pressure as the economic threat of the Wuhan virus ferments fear, coming at a time when valuations on equities, in particular, had been pumped to record highs by the return of easy central bank money. Expect investment-grade government bond yields to keep falling and precious metals to keep rising as investors globally choose discretion over valour.


The Shanghai Composite and CSI 300 in China have fallen by 7.50% at the time of writing, after reopening 9.0% lower following the extended Chinese New Year break. The slight recovery looks like more of the oft-mentioned dead-cat bounce prevalent last week across the world, however, with the daily 10.0% limit-down for both indices potentially achievable today. China’s “national team” of state-owned investment funds are likely only to be able to fight a rear-guard action today, which is in fact, a sound strategy.

Elsewhere, Wall Street had already set the tone for Asian markets, as the Masters of the Universe succumbed to the Wuhan virus threat on Friday. The S&P 500, Nasdaq and Dow Jones Industrials falling by between 1.50% and 2.0%.

That said, the damage had already been partially priced into regional APAC equity markets last week. It has mollified the carnage in China from spilling over to the rest of Asia, but local markets are still a sea of red. The Straits Times and Nikkei 225 are 1.0% lower, the Kospi 0.50% lower and the Hang Seng is 0.20% lower. Australia’s China-centric All Ordinaries is 1.15% lower, and the rest of Asia’s regional markets are all anchored in the red.

We can expect more of the same for the rest of the session, with any incipient recoveries likely to be met with a wall of sellers. The Wuhan virus effect will also likely compound the negative performance of Europe’s stock markets on Friday as well.


The US dollar sank against its major counterparts on Friday as US yields tanked across the curve on growth worries and haven inflows. The dollar index fell 0.50% to 97.40. EUR/USD and GBP/USD shrugged off the UK’s official exit from Europe on Friday, approaching 1.1100 and 1.3200 respectively. GBP/USD has fallen by 50 points to 1.3150 this morning, after UK PM Johnson signalled a hard line with Europe in upcoming trade agreement negotiations, over the weekend. Growth fears are likely to make further rallies hard going though, even with a weaker US Dollar.

The USD/JPY has fallen to 108.40 boosted by Yen repatriation and haven flows and looks set to outperform in the coming days. 107.75 looms as monthly support on the downside.

Offshore Chinese Yuan has capitulated over the last hour, with USD/CNH crashing through the key 7.0000 level, rising 200 points to 7.1000. With one eye on the White House and the US President’s itchy trigger finger on trade, Chinese authorities are unlikely to allow the CNH sell-off to become a rout from these levels.

With US Treasury yields continuing to sink, weakening the US Dollar, regional Asian currencies have been spared an emerging market sell-off thus far today. That state of affairs is likely to be intrinsically tied to the performance of the Mainland markets over the next few days.


Oil fell on Friday with both Brent crude and WTI lower by over 1.8% as Wuhan virus growth feared swamped Friday’s early rally in Asia. After an initial 1.0% dip on opening this morning, both Brent crude and WTI have made small gains. Brent crude is down 0.65% at $56.25 a barrel, and WTI is lower by 0.25% at $51.40 a barrel.

The recovery is unconvincing, however, and we would expect renewed selling pressure into Europe as Petro China has announced refining output cuts to match reduced demand on the Mainland. OPEC and its allies will be particularly concerned by Brent crude approaching the $55.00 a barrel market, being the international pricing benchmark used across the world ex-USA. A fall through $55.00 almost certainly will see an early OPEC+ meeting convened, and further price cuts announced. They are, however, only likely to plaster over the wounds, as oil remains perhaps the most vulnerable asset class to a global economic slowdown, induced by the Wuhan virus.

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.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is 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, Channel News Asia as well as in leading print publications including 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.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)