Asia Open – Market Carnage, RBA to hold, Oil slides, Gold and Bitcoin surge

Global markets are likely to continue to see pressure as sentiment has been badly damaged with the recent escalation in the US-China trade war.  The promise of global central bank easing is not enough of a reason to buy into this weakness and we will likely see the Asian indexes extend their respective slides into bear-market territory.  South Korea’s Kospi, Japan’s Nikkei and the Shanghai Composite could see further pressure in the short-term if we see another 5% selloff this week. 

Continued yuan depreciation should be expected, albeit in a staggered pace.  Beijing is likely to tolerate further weakness and we could see another 5% before the end of the year.  The US is likely to counter the breach of the critical 7 level to the dollar with verbal intervention.  Currency wars are taking center stage and while the US will step up the manipulation rhetoric, they are unlikely to adopt a weaker dollar policy. 

RBA

The RBA is expected to keep rates at their record lows tonight despite the recent escalation in the US-China trade war.  After delivering consecutive rate cuts, the RBA has witnessed a strong improvement with economic data that warrants a hold.  We will likely see the RBA wait until we see the next round of tariffs implemented before they consider another rate cut.    

Oil

Oil prices can’t shake off falling demand concerns, as China’s latest escalation with devaluing the yuan and limiting US agricultural purchases derail hopes for a trade deal to be reached this year.  Oil could start to see some buying interest however as US stockpiles are expected to decline after Genscape data showed Cushing inventories fell 2.4 million barrels last week.  Right now markets are ignoring the Middle East situation, but if we see the situation in the Persian Gulf remain volatile and if US inventories extend their streak of declines, oil should see some support here. 

Gold

The market sell-off could still see another major push lower and that will likely be the catalyst to take gold above $1,500 an ounce.  The deteriorating global economic outlook is likely to see stronger easing signals from all the large central banks and that should keep bullion demand high.  Geopolitical risks from Hong Kong or the Persian Gulf could be wildcards in case for higher gold prices.  It seems that even if we see a strong dollar over the coming weeks, gold’s rally should not be disrupted. 

Bitcoin

Bitcoin’s rally coincided with gold’s but it should not be confused as a flight to safety trade.  Bitcoin’s latest move stemmed from the possible signs that China is becoming more open to cryptocurrencies.  Bank of China surprised many crypto fans with a report on how Bitcoin works and why it is rising.  One of the largest crypto exchanges in China, Huobi created a Communist Party branch, a sign they will work with Chinese central government.