A bright start for Asia

Following a US holiday on Friday, Asia has shrugged off the Covid-19 clouds that dominated the weekend press and is basking in a positive start to the week. Asian equity markets have made a strong start, with the US dollar easing lower across the board.

Financial markets have long shown a herd immunity to the Covid-19 pandemic, although the headlines across the weekend gave no solace to the real world. Covid-19 continues to wreak havoc across the US Sunbelt and Latin America, while a disturbing trend of localised lockdown has emerged internationally, stretching from Australia to Spain and onto Great Britain. However, only Australian markets appear to reflect those concerns this morning.

 

Australia and Malaysia rate decisions

The data calendar this week is a much quieter one, after last week’s blockbuster. In Asia, the highlights will be tomorrow’s Australian and Malaysian rate decisions. The Reserve Bank of Australia (RBA) will undoubtedly stay unchanged at 0.25% with no mention of negative interest rates. What they may express though, is concerns about the recent rally in the Australian dollar. That may be enough to induce a short-term correction lower. Bank Negara Malaysia (BNM) will almost certainly cut 25 basis points to 1.75%. There is a decent chance, though, that they may cut 50 points to 1.50%, given recent inflation data plunging into negative territory. The recovery of the ringgit in the past two-months may embolden their hand as well.

Elsewhere, the US ISM Non-Manufacturing PMI is released this evening. The expected recovery inactivity should be equity supportive as the US returns from holidays. Euro-zone negotiations continue this week over the size, scope and details of the regional Covid-19 recovery package. Again, if a compromise agreement is hammered out in a very European way, that should provide a boost to European equities and notably, the euro itself.

 

Hong Kong security bill

Hong Kong concerns are fading as fast as they began, as the new China imposed security laws allow money to talk without the annoying interference of protestors. This story still has more to run in a geopolitical context. Canada suspended its extradition law to the SAR over the weekend, and the US Congress passed its Chinese officials censure bill. President Trump has not signed it, but that does not mean some sort of retaliatory measures is not on the way. They most certainly are. The scale of those measures will dictate whether geopolitics will have more to say on global financial markets.

With a relatively second-tier week of data ahead, the immunity of the peak-virus herd is likely to dominate proceedings. That suggests that equities, commodities, energy and Asian emerging market currencies will be notable beneficiaries. With the market in “forward-looking” mode again, only a dramatic scaling-up of US-based Covid-19 lockdowns looks like to scuttle proceedings, given that markets are completely ignoring them elsewhere.

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 and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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