Asia Session: Asia Discards The Apples

The fallout from Apple Inc’s revenue warnings weighed on markets overnight as the US returned to work. Asia though appears to have put the Apple news behind it, with Asian stock markets mostly in the green today.

Despite a second recorded death from coronavirus in Hong Kong this morning – and news of new cases in South Korea – Asia appears to be casting one eye to the future. With China seemingly announcing targeted stimulus measures by the day and following Singapore’s blockbuster budget yesterday, Asia seems confident that the region’s governments will “do what it takes” to offset the coronavirus slowdown. That sentiment may not be misplaced, with the Bonk of Indonesia set to ease again tomorrow, and both Japan and South Korea standing ready with their own kitchen sink packages aka Singapore.

The news wasn’t so bright elsewhere though, with Germany’s ZEW Economic Sentiment Index collapsing to 8.7 overnight. That sent the EUR/USD down to a 22-month low of 1.0800. Having sold its soul to the Chinese and US export market and facing tough trade negotiations with Her Majesty’s Government in London, Europe finds itself facing a perfect storm if the coronavirus slowdown becomes an extended one.

Add in a potential trade battle the glowering one-eye from Trump Tower and a central bank low on fire-power, having cut rates to zero and already quantitatively easing, there is not a lot to like about Europe at the moment. European governments’, held in the thrall of Teutonic austerity and having left the heavy lifting to the ECB to keep the lights on domestically for the last ten years, could well find 2020 a year of reckoning. When Italy and Greece 10-year government bonds yield less than one per cent, all is not well in the State of Denmark. (no disrespect to the Danes intended)

China releases New Loans for January, and Outstanding Loan Growth YoY, at 1700 SGT. New loans are expected to expand by CNY.3 trillion with outstanding loans set to grow by 12.1% YoY. That reflects China’s pre-virus stimulus efforts ahead of the Lunar New Year. As with other data from around the world, we will have to wait until March to see the real havoc coronavirus has heaped upon global economic activity.

Equities

Apple’s revenue warning saw US stock markets ease overnight, although surprisingly, the Nasdaq was the best performing. The S&P 500 fell 0.30%, the Nasdaq was unchanged, but the Dow Jones eased 0.55%.

Singapore’s blockbuster stimulus budget yesterday has emboldened Asia that other government s in the region will do the same, lifting hopes of a nirvana-like V-shaped recovery post coronavirus. Time will tell if that thesis is correct, but for today, Asia stock markets are enjoying a day in the sun.

The Singapore Straits Times has risen 0.70% as local companies were boosted by a variety of goodies from the government yesterday. The Nikkei 225 has risen 0.95%, with the Mainland Shanghai Composite up 0.50% and the CSI 300 up 0.55%. The Hang Seng has risen 0.35%, but the Kospi is flat after more coronavirus cases were reported there.

I would describe the tone today as cautiously positive, with Asia not getting too carried away on the post-coronavirus future. Sentiment remains fragile with investors having zero appetites to hold positions even mildly out of the money. That sentiment is unlikely to be reflected too strongly in European shares when they open, as if anything, Europe faces a battle on more then one front.

Currencies

The USD/CNY fixed above 7.0000 this morning with both the onshore and offshore Yuan trading above that key level this today. Overall though, the USD/CNH is still locked into a 6.9500/7.0500 trading range with much noise at both ends, but little momentum to break-out either way.

Elsewhere, the US Dollar mostly gained, as a negative day on Wall Street saw renewed haven flows into US Treasuries. EUR/USD was a notable loser, falling 0.50% to a 22-month low of 1.0790 overnight, as the appalling German ZEW print reinforced the negative issues facing Europe’s engine room.

EUR/USD has recovered ever so slightly to 1.0800 in muted trading in Asia. From a technical perspective, a weekly close below the 1.0780/1.0800 implies a multi-week move lower to the next support region at 1.0500 is on the cards.

Oil

Oil fell initially in New York by over one per cent as the street digested the Apple announcement. It quickly regained those loses though after the US Government announced sanctions on Rosneft’s Swiss trading unit for alleged sanctions violations with Venezuela. Brent crude finished unchanged at $57.70 a barrel and WTI unchanged at $52.10 a barrel.

After dropping in early trading, both contracts have made a startling comeback as the Asia session has progressed. Both Brent crude and WTI have risen by 1.0% to $ 58.40 and $52.60 a barrel respectively. Oil appears to have coat-tailed the move higher in equities in Asia as risk sentiment stages an intra-day rebound.

While I won’t stand in the way of intra-day tail-chasers, I will remind readers that rallies sin oil should be approached with caution at these levels. Brent crude and WTI will face huge challenges regaining the $60.00 and $55.00 a barrel regions, in the face of plummeting demand in China, and a structural oversupply of product, even before coronavirus.

Gold

Gold climbed 1.40% to $1603.50 an ounce overnight, propelled by haven flows as the market digested Apple’s revenue warning. In the process, clearing out technical resistance between $1595.00 and $1600.00 an ounce.

As I warned yesterday, gold’s refusal to roll over in the face of the V-shaped recovery sentiment evident in other markets, implied that it had an underlying strength, even at these lofty levels. That outlook still holds today as it is evident that in a “risk-on” market, gold holds its own. However, as soon as sentiment moves to “risk-off,” gold rallies. Clearly, there are many investors out there who do not believe coronavirus will pass as quickly as it arrived and are happy to accumulate insurance on dips.

Gold’s rise has continued in Asia despite the hype in oil and equity markets, rising to $1605.50 an ounce. Gold has support in the $1595.00/1600.00 an ounce zone, with initial resistance at the 8th January high of $1608.50 an ounce. With gold at near 7-year highs, the next significant resistance does not occur until the $1685.00/$1700.00 an ounce regions.

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