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Asia Morning: Finding Joy In Being Wrong


After spending the last two weeks telling readers to treat any rallies in asset markets with huge grains of salt, I have had salt rubbed aggressively into my open wounds overnight. Wall Street refused to be “one and done” and continued pricing in a fast recovery from any Wuhan virus slowdown, with stocks continuing their powerful rally and the Nasdaq hitting all-time highs. US Treasury yields rose, and the haven currencies, Japanese Yen and the Swiss Franc had a bad day at the office.


I am also staggered by the number of epidemiologists that work within the financial markets and investment community globally. I had always thought of it as a rather specialised occupation, but they appear to be as common as accountants. Their scholarly opinion is that China has been successful in containing the Wuhan virus, and the shock to growth will thus, be short-lived. Chinese authorities will stimulate their way out of any slowdown. I haven’t seen any data to support either thesis. No amount of stimulus packages will work if citizens stop consuming goods and services and stay at home and hoard their money. Just ask Japan.


Still, I am neither an epidemiologist nor an accountant thankfully. I will bow to the assembled legions of experts that have resumed recycling the worlds savings glut in earnest overnight. In hindsight, my note yesterday cautioning about swiping right and jumping into a relationship with equities too soon after a messy break-up showed unnecessary cynicism. I met Mrs Halley by swiping right and have been to several weddings in recent years of couples who used the same process. I shall be overjoyed if we have seen “peak virus,” as the combined scientific minds of the global financial markets are suggesting.


With Wall Street performing so impressively overnight, Asia will inevitably follow suit, in a collective sigh of relief from behind their N95 masks. Data released this morning continues to support that case. Australian Commonwealth Bank Services PMI for January surprised, climbing back above 50 to print at 50.6, justifying the RBA holding rates unchanged yesterday.


China’s Caixin Services PMI for January retreated only slightly from December, printing a still expansionary 51.6. That is impressive as it covers the Wuhan virus’ official outbreak and the ensuing mass Chinese New Year shut down. Japan’s Jibun Bank Services PMI for January also rose above the expansionary Jan 50.0 level to print at 51.0, and Singapore’s Market PMI for January rose to 51.4.


Altogether, this morning’s January data implies that Asia is showing a degree of unexpected resilience, especially as the Wuhan virus outbreak would have made its arrival known through the service’s part of the economy first. I don’t have a magic scanning electron microscope to tell me whether we are hitting “peak virus,” or “peak optimism.” The former will win the day today.




Wall Street had an impressive session overnight with the Nasdaq hitting record highs, propelled by the thousands of epidemiologists in the financial markets proclaiming that “worst Wuhan” has passed, and another giant leap in Tesla’s stock price. Tesla rose 14.0% to just short of $900 over the session, as another virus swept the market that appears to have a 100% mortality rate. Not FOMO-itis, which has infected equity markets for some time, and to which, much natural resistance has evolved. I am, of course, referring to IM-shortTesla2020 virus.


The IM-shortTesla2020 virus only infects bears, and its peak infection occurred when Tesla’s share price was well below $500, about a month ago. IM-shortTesla2020 may well exponentially replicate to over $1000 before the last infected bear passes away. Investors carrying FOMO-itis should avoid Tesla at these levels, as the risk of cross-infection is high.


The S&P 500 rose an impressive 1.50% overnight but was overshadowed by the Nasdaq, which rocketed 2.10% higher with the Dow Jones a comparative laggard, rising a mere 1.44%. Asia has needed no seconds thoughts with indices across the region following suit today.


The Straits Times has risen 0.40% with the Nikkei 225 rising 0.90% and the Hang Seng rising 0.75%. China’s Shanghai Composite has climbed 2.10%, with the CSI 300 posting a 1.50% gain.


Optimism over “peak virus” will continue to rule equities today, and despite my doubts, I shall not stand in its path.




A perceived reduction in Wuhan risk and an impressive stock market performance saw the US Dollar power higher yesterday. Notably against haven currencies with USD/JPY rising 100 points to 109.50. US Treasury yields rose as haven positioning was unwound, which also gave support to the greenback.


Today in Asia, USD/CNH appears to be the focus of the region’s attention. USD/CNH has been gyrating in a wide range each side of the pivotal 7.0000 level between 6.9900 and 7.0200. Currency markets appear to be less bullish on a Wuhan virus recovery then equities with the 200-day moving average capping rallies at 7.0250. Chinese authorities are unlikely to want to see rapid depreciation in either the onshore or offshore Yuan, meaning the PBOC will likely be out in force to take the wind out of Yuan falls.


Elsewhere in Asia, regional currencies are on the back foot with the Dollar gently appreciating across the board. That is likely driven by the rise in US yields overnight with most regional central banks likely to have an easing bias at the moment.




Oil fell modestly overnight as the constant stream of bearish energy news was mollified by the return of confidence in equity markets and the likelihood of OPEC action on oil output. Brent crude fell 0.70% to $54.00 a barrel, and WTI eased 0.80% to $49.70 a barrel.


The wave of optimism sweeping equity markets has overflowed into energy markets this morning with both contracts posting substantial increases. Brent crude has risen to $54.50 a barrel, and WTI has climbed back above the $50.00 level to $50.25 a barrel.


Against the scale of the price collapse over the past month, the recovery is modest, to say the least. While equities are pushing record highs yet again, oil remains at near two-year lows on growth fears. That perhaps implies that it is not just Wuhan virus concerns that are fuelling the drop in prices. Whichever way one looks at it though, action from OPEC and its allies to stabilise prices still looks inevitable.




The return of confidence in financial markets overnight spelt bad news for the haven-centric gold. With yields and the US Dollar moving higher, gold fell 24 dollars to $1252.00 an ounce, just above support at $1550.00.


Profit-taking has been evident in Asia, with gold rallying back to $1559.00 an ounce over the morning session and with perhaps, some bargain hunting after its recent climb. What is clear, though, is that gold’s ability to maintain gains above the $1550.00 regions is entirely reliant on the world not being past “peak virus.” We also note that gold tested and failed numerous times ahead of $1590.00 an ounce over the last week. It implies that the Wuhan situation if anything, would need to escalate sharply to give gold the necessary momentum to rise above $1600.00 an ounce.


If confidence continues to increase that the worst is behind us, gold will continue to suffer — a daily close below $1550.00 sets up a much deeper potential correction. Possibly as far as $1500.00 an ounce.



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 [4]

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

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