China Continues To Lead The Way

The quarter limped to a relatively quiet finish overnight with Wall Street easing yet again as the COVID-19 pandemic shows no signs of slowing in the United States and Europe. Today’s PMI dump across Asia showed a mixed bag with South Korea, Japan, Thailand and Indonesia’s manufacturing PMI’s all printing just below 50. Still, in a relative sense, it was not all doom and gloom with Asia still holding its head about water, just. China provided the highlight, with the Caixin Manufacturing PMI crawling back into expansionary territory, printing 50.1. The Caixin data encompasses a much broader range of small and medium enterprises than the official data, and the fact that it remains above 50 is some reason for cheer that China remains on track to lead the world out of the pandemic slump.


That is not to say that the world is out of the woods by any stretch of the imagination. Most, if not all the worlds airline industry, will either have ceased to exist, or be in some nationalisation, before this is all over, for example. Nor is there any sign that peak virus has passed in either Europe or the United States. If anything, the worst is yet to come, and some of the world’s largest emerging markets are still to feel the full onslaught of COVID-19.


The swath of European manufacturing PMI releases due this afternoon will most likely reinforce that notion. Markets should temper their enthusiasm and accept a lower for longer outlook for Europe and North America. China, while showing pleasing signs of incipient recovery, cannot on its own light the world from a pandemic malaise on its own.




Asian stock markets are mixed today although they appear, for the most part, to be ignoring the 1.0% falls in after-hours S&P and Nasdaq futures this morning. Wall Street itself closed down with the S&P 500 falling 1.60%, the Nasdaq falling 0.95% and the Dow Jones falling 1.84%. Quarter-end portfolio rejigging probably explained much of the fall, with the damage limited by President Trump proposing a “new-deal” style $2 trillion infrastructure spend-up. It is ironically circling back to a campaign promise from 2016 that quietly died once he took the keys to the White House. Quite how it would be paid for and how it would be deployed, when much of the US is or will be in lockdown is a story for another day.


The Nikkei 225 has slid 1.25% today along with the Singapore Straits Times and Hang Seng. However, Australia’s ASX 200 and All Ordinaries are both over 4.0% higher, continuing a somewhat mindboggling rally over the past two weeks. I’m not sure what the Australians know that the rest of the world doesn’t, but to give the move context, the 1000-point rally in the ASX 200 to 5400, still leaves the index over 1500 points shy of its mid-February 7000 level. Some caution is warranted at these levels, one suspects.


Elsewhere though, the Shanghai Composite and CSI 300 are both 0.50% higher as its the South Korean Kospi. Jakarta has climbed an impressive 2.80% today, perhaps reflecting new stimulus measures from the government and its status as the most unloved Asian market previously.




The US Dollar continued its climb overnight boosted by the end of quarter US funding requirements. Compared to the day before, the gains were more modest against the majors. The Federal Reserve announced a special repo facility for other central banks to alleviate Dollar shortages overnight. That took some of the edges of Dollar shortage worries around the world.


With the US 10-year now yielding 0.67%, the Dollar is unlikely to embark on a structural sell-off anytime soon. The hunt for yield awaits no man, and the United States, in comparison to the rest of the developed world, has plenty of it, even at these levels. That situation is unlikely to change if President Trump suddenly needs to borrow $2 trillion to build roads.




President Trump’s telephone call to Vladimir Putin had the desired effect, stabilising prices overnight. The President’s intention to keep filling the SPR with local crude also gave some respite to black gold. Brent crude finished flat at $23.00 a barrel, but WTI climbed 1.30% to $20.40 a barrel on the news. Both contracts remain unchanged in quiet Asian trading.


Whichever way you cut it though, oils dynamics do not in any shape or form, justify a rally in prices from here. All that can be hoped is that the possibility of the US, Russia and Saudi Arabia getting around the table stabilises prices at these levels. Price war aside, the demand shock from the shutdown of Europe and the US alone ensures that any rallies are limited.


Going forward, it is clear that any deal between Saudi Arabia and Russia must include the US in some shape or form. How that could be engineered from a legal perspective escapes me, but that is what is going to have to happen.




Gold’s consolidation after its $150 rally last week ended abruptly overnight. End of quarter portfolio selling in equity markets appears to have undermined gold prices, as well as the direct correlation to equity prices, returned with force. Gold fell %2.80 to $1577.00 an ounce, a fall of nearly 50 Dollars.


Support at $1600.00 an ounce gave way quickly and now becomes intra-day resistance from a technical standpoint. Support appears at $1560.00 an ounce. Technical indicators are probably not playing much of a role now with gold and investors should likely follow Wall Street’s stocks lead as a clue to short-term price moves.


In the bigger picture, $1450.00 an ounce appears to be solid long-term support for gold while maintaining any rallies above $1650.00 remains challenging. That is a wide but real range, such are the times we are living in.

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

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