Asia Open: Border Reopening Bounce

Stephen Innes SPI Asset Management

Asia risk sentiment is off to a rousing start coat-tailing the rise in US equities as investors revel in the unexpected contraction in services sentiment while hoping a slowdown in wage growth will dull the sharp edge for the Federal Reserve's rate hike onslaught.

The U-turn in China's Covid policy is consequential to growth and equity returns. So with the lifting of border restrictions between China/HK/Macau and international travel reopening, local travellers are not only in a celebratory mood but also investors.

The dollar is a touch weaker from Friday's close as more folks in Asia pitch tents in the 25-basis point camp at the February Federal Open Market Committee meeting. But subtlety tempering the USD sell-off, Fed Bostic was quick to take to the airwaves reminding everyone that the slowdown in wage increases does not alter the Fed playbook as this is what rate hikes are supposed to do. After all, the crux of the Fed inflation problem ultimately boils down to cooling the labour market, which is still highly resilient.

In Asia, the closer we get to 6.80 USDCNH, the more China's spot economic data will need to do the heavy lifting, given those boatloads of reopening optimism are baked into the cake right now.

Oil prices are opening higher on a weaker US dollar and buoyant risk sentiment. At the same time, optimism over the Hong Kong borders opening and China ending quarantine for overseas travellers adds to Asia's overall cheery mood. -Removal of local restrictions, inter/intra-provincial mobility normalization, lifting of border restrictions between China/HK/Macau and international travel reopening are strong tailwinds for oil markets.

As we get more snapshots of China's mobility normalizing, oil prices could gradually rise tangentially to that impulse.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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