Suspended

Liquidity has been hit in Asia today with mainland China and South Korea on holiday and a partial holiday in Australia. Although Wall Street performed well on Friday, which fed through to lower US yields and the US dollar slipping, news that the Hong Kong Stock Exchange has suspended China Evergrande Group share from trading from today, and related structured products, has put China nerves back front and centre with regional investors.

Evergrande has a USD 260 million offshore note maturing today, which only has a five-day “grace” period, and if no sign of payment occurs, the negative noise around the company and China’s property market will increase once again. There still remains very little visibility from the Chinese government over Evergrande’s fate, although a slow and steady dismantling of the company appears to be the favoured course right now. Mainland China is away until Friday, which is rather unfortunate timing, especially if Evergrande misses that note redemption today.

The data calendar is empty in Asia today, literally, leaving markets at the mercy of headline-driven volatility in a low-liquidity environment. Globally, the calendar is thin as well with only US Factory Orders this evening of moderate importance. By far and away the most important event today will be the OPEC+ meeting, given the surge in energy prices around the world and the blackouts in China. OPEC+ has a regular record of surprising, but I doubt that the grouping will be willing to much more than throw a few bandaids on production levels. With compliance well over 100% amongst members, they probably don’t have the capacity to aggressively ramp up production at short notice anyway. The December production cuts could be brought forward to November as a placation mechanism, but after a torrid 18 months, the temptation to fill depleted state coffers is probably too much to resist right now. I do note that the world was working just fine when oil prices were touching USD 140.00 a barrel. This is a natural gas and coal problem, not an oil problem. Oil is just the accidental tourist.

In the US the USD 3.5 trillion build-back-better and USD 1.0 trillion (or is it 550 billion?) infrastructure packages remain mired in limbo amongst the squabbling democrats. The debt ceiling, kicked down the road to December, also remains up in the air. Perversely, US markets seem to be liking the uncertainty caused by the Democrat “progressive” wing, who need to understand the words “mid-term elections” and “claim the centre.” The stock market, in particular, takes a liking to government paralysis or infighting. That equals no change to policy equals status quo equals buy everything. It wouldn’t surprise me in the least this week, if US stock markets rally inversely proportionally to Democrat infighting.

All roads, of course, will lead to the US Non-Farm Payrolls data from the US on Friday. Easing virus cases and the end of summer holidays, along with school reopening should see an improvement on August’s shocker of a number. Markets are forecasting a gain of around 500,000 jobs for September, although that number becomes a moving target as the week goes on and forecasts are refined. A number much lower than 500k will see Fed taper expectations dialled back, although probably at the expense of increasing stagflation noise. I’m not sure how to position for that but buy-everything seems to usually work no matter what. Conversely, a much higher number will lock and load a December taper start, assuming any FOMC members can be drawn away from their personal trading accounts and are left to vote next month. That should see the slow taper-tantrum-lite of the last two weeks resume.

RBA, RBNZ exepected to hold the course

In Asia-Pacific, we have three central banks announcing policy decisions this week. Australia’s RBA will remain unchanged tomorrow and having already hedged its bets expertly in previous statements, will remain ultra-dovishly on the fence with the optionality to jump each way. The Reserve Bank of India has ignored stagflation for all this year, and I expect them to do so once again and hold rates unchanged. Like the Philippines’ BSP, if the Non-Farm’s this Friday confirm a Fed taper, it’s going to be hard to maintain that low and hope policy. Expect pressure to remain on the rupee, especially with energy prices likely to increases importer INR selling.

New Zealand’s RBNZ policy decision is due on Wednesday with the central bank delaying the last meeting’s scheduled interest rate hike because of the arrival of the delta-variant the day before in Auckland. History is repeating itself it seems, with the virus jumping the Auckland fence into a surrounding province over the weekend. If they spike before Wednesday, I expect the RBNZ to have another “least worst option” and postpone once again. They may telegraph an above 0.25% hike to make up for it in the future, but there probably aren’t many reasons to be aggressively buying kiwi this week.

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Jeffrey Halley

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.
Jeffrey Halley
Jeffrey Halley

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