Asia Session: I Wanna Be A Trillionaire…

Financial markets put worries over the nuts and bolts of the US-China trade agreement behind them within a day of the signing, getting back to the business of deploying the world’s savings glut in a zero per cent interest rate world. That search for yield, unsurprisingly, pushed Wall Street equities to new record highs.

In the process, it welcomed Alphabet to the trillion-dollar market capitalisation club. The “gang of four” now comprising, Alphabet (Google), Apple, Amazon and Microsoft. For my part, I am hoping that the next member of the trillionaire club starts with a consonant. I can’t create a witty acronym from three A’s and an M.

The FOMO global recovery trade has now stared down a possible war in the Middle East, and a trade deal between the world’s two largest economies inside the first three weeks of 2020. Whether it is built on solid or shaky foundations is a moot point, the momentum is clearly there for Q1 at least.

Further signs of the recovery made their presence felt in Asia this morning. Firstly trade-bellwether Singapore saw a welcome bounce in its Balance of Trade and Non-Oil Exports. The island state saw its trade balance rise to $4.75 billion in December, far outstripping an expected increase of $2.5 billion. Non-Oil Exports for December jumped by 2.4% YoY versus an anticipated fall by 1.8%.

China’s much anticipated Q4 GDP rose by 6.1% YoY, exactly on official expectations, which was no great surprise. The doomsters were out in force, wailing that the increase in growth was the lowest in nearly 30-years. However, it was the accompanying Industrial Production and Retail Sales data for December that caught my eye. Industrial Production rose by a well above forecast 6.9% (5.9% exp), while Retail Sales similarly outperformed, jumping by 8.0% (7.8% exp). Capacity Utilisation also moved higher to 77.5%.

The data adds to a procession of data from the Asian region in recent times, suggesting that the engine room of the world is slowly recovering its mojo. South Korea held interest rates at a record low of 1.25% this morning, and domestic demand remains sluggish across the region. Still, appreciating currencies against the US dollar leave much of the areas central banks room to cut further to support demand.

I fully acknowledge that all is not well with the world, as evidenced by the mass culling of interest rates by the world’s central banks in 2019. A reckoning may come between financial markets and the concerns driving central bank monetary policy in 2020. But the final scene of the Emperor’s New Clothes is unlikely to happen in Q1 or even H1.

Equities

Although Wall Street pushed to record highs overnight, China GDP nerves and the coming weekend have meant the party hasn’t been as noisy across Asia. Regional markets are cautiously mixed. The Nikkei 225 has jumped 0.45%, while China’s CSI 300 and Shanghai Composite have sounded a more cautious tone, rising 0.20% and 0.30% respectively.

Looking across the region, the Kospi and Straits Times are flat, with the Hang Seng carving a modest 0.20% gain. Kuala Lumpur and Manila have risen 0.20% with Jakarta falling by the same.

A substantial data calendar in the US this evening, with JOLTS Job Openings, Michigan Consumer Sentiment, Industrial Production and Housing Starts has contributed to the wait-and-see mood, after what has been a quite action-packed week.

Currencies

US Treasury yields edged higher as more excellent US Bank results hit the wires along with a slightly above expected Retail Sales. The combination was broadly supportive for the US dollar, which edged higher against other major currencies.

FX markets are becalmed in Asia with most majors unchanged from New York. EUR/USD is at 1.1135, GBP/USD is at 1.3070 while USD/JPY has edged through 110.00 to 110.15. USD/CNH has fallen 50 points to 6.8720 after China’s data passed without incident, but seems destined to trade between 6.8500 and 6.9000 over the coming days.

Currency markets appear locked and loaded for the weekend.

Oil

Oil coat-tailed the equity markets renewed wave of economic optimism overnight, with both Brent crude and WTI recording solid rallies. Brent rose by 1.20% to $64.70 a barrel, and WTI rose by 1.50% to $57.75 a barrel.

Some profit-taking, post the New York session, has been evident in Asia today. Both contracts are edging lower by about 20 cents a barrel. Brent crude falling to $64.50 and WTI to $57.55 a barrel respectively. Oil markets are seemingly content to take their direction from the US data prints tonight.

Gold

A stronger US dollar and higher US Treasury yields saw gold retreat slightly overnight, falling 0.20% to $1551.85 an ounce in a directionless session. Weekend risk hedging by Asian traders has seen gold climb five dollars to $1557.00 this morning, but the rally lacks momentum.

Gold has failed numerous times over the past week ahead of the $1562.00 area, and gold’s malaise is unlikely to unless we see a strong move through that. Interim support lies at $1548.00 with more important support remaining around $1535.00 an ounce.

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