Asia Wrap: After the “risk-off” dash for the exits and Brexit you're always on my mind
|After a "risk-off” dash for the exits this morning, the scramble has left a lot of carnage in its wake. Oil is off over 2 %; the Yuan is down over .5 %, and AUDUSD is within stone's throw of the critical .6800 level after iron ore futures extended losses to 6 % on concerns regarding the virus spread.
Although the sell-off has tempered, it's probably too early in the game to summarily write off this morning's price action as a classic risk-off move amidst thin holiday liquidity as risk sentiment would continue to depend on the evolving coronavirus situation. It could be safer to assume, based on previous flu scares, that the contagion effect could get much worse before it eventually gets better.
Also, Investors are mindful of the fact that the Wu-Flu incubation period is estimated at between 5 days and two weeks. Suggesting the true extent of the carnage would be more evident after the Lunar New Year holiday, so the balance of risk could remain on the wobble until at least China returns from their extended holiday. And if you missed the headlines, has extended the week-long Lunar New Year holiday by three days to Feb 2 in an attempt to slow the virus spread.
With a lot of ground to be made up, frankly, I'm in no rush to get back in the saddle. And willing to forgo the first 1 % of a comeback rally on growth assets for no other reason than to make sure the nasty mutated virus has stopped spreading — no need to pick bottoms to get back in when the momentum is on your side. And I anticipate the market comeback rally will be quite scintillating.
THB, which is trading at 30.60 USDTHB ( THB-.32%), is universally thought to be the most vulnerable in EM Asia, potentially followed SGD to China's overseas tour bans. Nearly half of Thailand’s current-account surplus is accumulated from services, which in turn is mostly tourism-related
In other news
Friday's better UK PMI data did little to move the needle on BoE rate expectations ahead of the decision later this week. OIS expectations of a cut are still hovering just above 50%. Separately, the UK is set to approve Huawei a limited 5g role with a potential cap on market share, which is not going to go over well with the hawks on the US administration.
Brexit
I think we're all looking to bury the word Brexit, but that is nothing short of the most significant case of self-deception in years as the dawning reality of Brexit will likely be a critical topic for the coming months.
The Brexit trade debate is already playing out even before the UK leaves the EU on Jan. 31, and long before both sides lay out their formal negotiating positions. The British government is emphasizing trade in goods, in which the UK has a surplus, and makes headline-grabbing threats of tariffs on German cars and French cheese.
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