Asia On Its Own On President’s Day

The United States markets are closed today to celebrate President’s Day, leaving Asia to its own devices for a change, although volumes may be somewhat muted because of it. While celebrating US Presidents and presidential wannabees in the present day and age, may be somewhat of an oxymoron for many of us, that has left weekend coronavirus developments and Asian economic data to dominate the start of the week.

With coronavirus and its potential downstream effects still grabbing the headlines, one glimmer of hope is that new cases in China appear to be occurring at a lower rate. That has been overshadowed by the release of Japan’s Tankan Index and Preliminary Q4 GDP which made grim reading. The Reuters Tankan Index fell to -5 but Q4 Preliminary GDP fell -1.60% QoQ and a whopping -6.30% YoY as Japanese consumers stayed home after the October sales tax hike. With the data no even encompassing the inevitable coronavirus slowdown to start the New Year, it suggests the more stimulus is on the way sooner rather than later in Japan.

Singapore grabbed the headlines over the weekend and this morning with Singapore’s Prime Minister suggesting that the coronavirus impact on the City-state was already deeper than the SARS one in the early 2000’s. That said, Singapore’s GDP Growth Rate for Q4 outperformed both on a QoQ basis and YoY basis. QoQ GDP rose 0.60% versus 0.10% expected, and YoY GBP rose 1.0% versus 0.80% expected. Meanwhile, its Balance of Trade posted a gain of SGD 1.58 billion.

The data, while positive, wouldn’t have set the world on fire and does not off course, encompass the economic one two punch coming from coronavirus in January and February. Singapore’s already hotly anticipated 2020 budget to be released this week, will now ratchet up a level. Financial markets are now expecting some serious deficit spending from the Government to offset the coronavirus slowdown.

The wonderful thing about Singapore – that about 99.0% of Governments around the world should take note of – is that they run strong budget surpluses during the good times, in order to have room to spend during the bad times. Expect some strong measures to support SME’s and employment to help companies whether the slowdown. A lot of bad news of priced into Singapore with the MAS almost certain to ease in April. It is early days, but progress on the coronavirus front could make Singapore one of the value trades of the year in 2020 for the brave as Singapore’s fiscal and monetary engines start pumping.

Thailand releases Q4 and annual GDP at 1030 SGT this morning. It will be closely watched for signs of the effects of the strong Baht on growth with Q4 GDP expected to grow only 0.40%. Given the massive hit that Thailand has taken on its critical tourism industry in January from the stay-away Chinese, investors will have itchy trigger fingers should the GDP print on the low-side.

Indonesia releases its January Balance of Trade at 1200 SGT with the trade balance expected to be flat led by a drop in imports. The Bank of Indonesia meets this week and will almost certainly trim rates again by 0.25% as it tries to break Indonesia growth through its 5.0% glass ceiling. The BoI will also be mindful that its resource dependant export sector is going to face challenging times due to the China coronavirus slowdown.

it will be interesting times for Indonesia in the months ahead as it deals with a slowdown in China, and more importantly, attempts to pass an omnibus Bill through Parliament to enact sweeping reforms in Indonesia’s labour market. Indonesia’s employee protections are something of a sacred cow here, and investors should not underestimate both their challenge and potential impact, if they are passed. That’s still a big if though. But if President Jokowi thinks Jakarta can host the 2032 Olympics, whom am I to dampen the optimism?

Japan releases Industrial Production for December at 1230 SGT with markets expecting a fall of 1.0%. China releases FDI at 1500 SGT and   January New Loans at 1700 SGT. Realistically though, the data is somewhat irrelevant, coming ahead of both the Lunar New Year and the coronavirus outbreak. The February data for China that arrives in early March will give the world a much truer picture of the state of play on the Mainland. Although official data and truer in China may be considered an oxymoron in the same light as celebrating US Presidents by many.

Equities

Wall Street limped to modestly higher close as eternal v-shaped recovery optimism was tempered by profit-taking and position reduction into the long US weekend. The S&P 500 climbed 0.18%, the Nasdaq 0.20% and the Dow Jones eased by 0.10%. US markets are closed for President’s Day, although I am sure Donald Trump’s Twitter account is not.

An apparent slowdown in the rate of new coronavirus cases in China has given Asia cause for optimism today. The Mainland Shanghai Composite and CSI are higher by 0.95% and 0.80% respectively. Hong Kong’s Hang Seng has shrugged of apocalyptic statements from the Finance Minister over the weekend to gain 0.75%. South Korea’s Kospi has risen 0.25% with Kuala Lumpur and Jakarta both flat.

The Singapore Straits Times is also unchanged after falling initially, as the coronavirus fears gripping the City-state’s economic outlook are somewhat mollified by an impending budget this week full of stimulus goodies. Japan’s Nikkei 225 plunged after the poor GDP numbers but has since recovered to be only 0.55% down as Mainland exchanges lift the gloom.

Glimmers of progress in China’s coronavirus fight will likely keep sentiment cautiously positive today. That should flow into European markets. Germany’s DAX, with its high beta to China growth, is likely to be a notable beneficiary in the short-term.

Currencies

The US Dollar retreated on Friday, notably against the Euro, which rose to 1.0830, as investors lightened positioning ahead of the long weekend. Notably, the week was a good one for China recovery currencies. The Australian Dollar rose 0.45% for the week to 0.6725 and the New Zealand Dollar, following a stay put Reserve Bank, rose 0.85% on the week to 0.6440.

The USD/CNH continues to flip-flop each side of 7.0000 in a broad 6.9500 to 7.0300 range depending on the day’s coronavirus sentiment. Unless the US Dollar strengthens markedly against its G-10 compatriots, the PBOC is unlikely to allow either the onshore, or offshore, Yuan to weaken much past the 7.0300 region with the White House as belligerent as ever, coronavirus or not.

Petro-currencies enjoyed a strong finish to the week, powered by the fool’s gold, as opposed to black gold, rally in oil prices. The Russian Rouble gained 0.95% to 63.42 00, and the Norwegian Kroner strengthened 0.55% against the Dollar to 9.2400. In both cases, further gains are entirely dependent on the rally in oil continuing.

With the US on holiday, volatility and volumes are low in Asia currency markets today. For the most part, both major and regional Asian currencies are unchanged from Friday. Europe’s arrival should see more Dollar selling as bets are placed, misguided or not, that there is light at the end of the coronavirus tunnel.

Oil

Whether last week’s oil rally is black gold or fool’s gold, remains to be seen. The author is strongly backing the latter. Nevertheless, coronavirus optimism and fast money chasing its tail saw both Brent crude and WTI carve another day of gains out on Friday. Brent crude rose 1.75% to $57.35 a barrel, and WTI rose 1.30% to $ 52.10 a barrel.

Oil in unchanged in Asia with volumes expected to be light due to the US holiday. Oil remains acutely vulnerable to both excess supply and the economic coronavirus-induced slowdown in China and other parts of Asia. I will not stand in front of the assembled might of epidemiologists that populate the equity and energy markets, I do note though, that the rally of last week is built on concrete with a lot of sand in it. It’s ability to withstand even a minor shaking of the ground, therefore, is very marginal.

Gold

Gold prices rose on Friday as investors loaded up on risk hedges ahead of a long weekend in the United States. Gold rose 0.40% to $1582.00 an ounce.

Some unwinding of those hedges is evident in Asia, with coronavirus optimism seeing gold pull back slightly to $1581.50 an ounce this morning. Gold will continue to bounce around on the see-sawing coronavirus sentiment of the day but remains locked solidly in the middle of its longer-term $1550.00 an ounce to %1600.00 an ounce trading range.

Volumes will be low due to the US holiday today.