Profit-taking hits equities

Asia markets drifting as investors hit pause button

The disappointing US Retail Sales was enough of an excuse for investors to lock in some recent profits. US markets drifted lower with the S&P 500 falling 0.48%, the Nasdaq edging 0.21% lower, and the Dow Jones drifting 0.56% lower.

With equity markets moving into wait and see mode, Asian markets are drifting. The Nikkei 225 has fallen 0.76% after uninspiring trade data and the Kospi is up slightly, gaining 0.15%. China’s Shanghai Composite and CSI 300 have gained 0.30%, with the Hang Seng unchanged.

Singapore has risen 0.50%, while Kuala Lumpur has fallen 0.75% with Jakarta and Manila both 0.30% higher. In Australia, the All Ordinaries and ASX 200 have gained 0.35%.

The resilience shown by Asia reflects the mostly positive data from the region, and its high beta to the expected 2021 recovery. All-in-all though, I am expecting today’s session to be a non-descript one.

Japan’s Balance of Trade for October reflected the challenges still faced by many countries. Although the headline number rose to yen 873 billion, exports were flat, and the surplus was flattered because imports plunged by 13.30% YoY for October. That is a slight improvement over September’s 17.70% fall, but highlights the fact that it is Japan’s manufacturing and export sector that is carrying the burden of recovery. Like Indonesia, Malaysia and Singapore, domestic demand remains in intensive care. That grim situation is unlikely to change until international borders reopen once again. A similar decline in domestic activity likely awaits the US and Europe for the remainder of the year.

The data calendar is light globally in the day ahead, and decidedly second tier, leaving markets vulnerable to headline-driven surprises. One source of possible volatility could be the United Kingdom, with the Irish Prime Minister stating that the UK and Europe can see a “landing zone” on a trade deal, if the UK compromises. Markets have been pricing in the certainty of a Brexit trade agreement for some time now. More positive headlines today could send give a boost to UK equities.

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