Asia Morning: Walkin’ on Sunshine

Thanks to some prior media engagements in Jakarta this morning and some spectacularly bad traffic in the Big Durian, today’s note is both shorter and delayed.

Global equity markets resumed walking in the sunshine overnight, with European and Wall Street stocks powering ahead, basking in the warm afterglow of the US-China trade announcements on Friday. After a tentative day yesterday, Asia has followed Wall Street’s lead, with Asian stock markets mostly higher in today’s session.

Some salient doubts remain of course about the interim trade deal. A legal document has yet to be produced for both sides to sign.  Doubts also remain about just how China is going to purchase as much agricultural product as they have allegedly agreed to do from the US. The supposed phase-two talks promise to take negotiation complexity to another level in 2020. A fundamental clash of doctrines between East and West on the mechanics of capitalism beckons, and I for one, have serious doubts about as to whether a fabled “comprehensive” deal will emerge next year at all.

That is, of course, a story for next year and in the meantime, an interim agreement should be bullish for the Asia Pacific region, more so than any other. Although the deal itself only stops the rot in the global economy, that in itself should allow Asian developing markets to play catch-up into Q1 2020. It will be helped in no small measure by most of the world’s central banks remaining in easy money mode.

Those hoping for a weaker dollar will likely be disappointed though. US Treasury yields rose overnight yet again, and despite the odd setback, US yields will continue to support dollar strength along with robust economic data.

The RBA minutes were upbeat this morning, pointing to a recovery in house prices as a sign of life in the domestic economy. Singapore’s Non-oil Exports MoM recovered by 5.80% this morning as well. Although still well down on the year, the positive report today highlights that Singapore is well placed to recover quickly, as confidence increases into the New Year.

US Industrial Production and Manufacturing Production data will be this evening’s highlights, with both expected to recover from last month’s drops. Boeing’s decision to halt 737 Max production temporarily will make its presence felt in the New Year data though.

Equities

Asian markets are mostly higher today. The trade-sensitive Kospi has leapt 1.0%, the Nikkei 225 is 0.50% higher, and the Hang Seng has jumped 1.10% after the Hong King government announced more stimulus measures. The Straits Times is flat, and the Australian ASX 200 is lower by 0.25% after its significant leap yesterday.

The positive tone should continue throughout the afternoon with Europe likely to open higher again.

Currencies

The US dollar is slightly lower in Asia as investors tentatively rotate back into emerging markets. USD/CNH has fallen 0.15% to 6.9940 but appears to be marking time until we see an actual trade document on paper.

GBP/USD is the primary mover among the majors, rising 0.30% to 1.3290 this morning. GBP/USD was sold heavily overnight as speculation mounted that the new government would amend the Brexit law to impose a hard leave date at the end of 2020. Getting a comprehensive EU/UK trade deal over the line in one year would be an impressive effort. The possibility of a hard Brexit-lite will cap gains in Sterling until we have more clarity from No.10, possibly as soon as this week.