Asia update: A risk-off sprint for the exits

Stephen Innes SPI Asset Management

News over the weekend was mainly surrounding the spread of the new coronavirus, which has left risk extremely prone and sent the FTSE China A50 through the trap door to the tune of a 5 % markdown. In lockstep, USDCNH has been in demand and is trading above 6.96 as traders begin to price in the unavoidable China GDP knockdown. All the while traders are waiting with fingers crossed for a signal of PBoC policy deluge, which could provide a suitable band-aid to stop the bleeding.

Japan's Chief Cabinet Secretary Sugga has already hinted at policy measures this morning to buttress the coronavirus impact on Japan's tourism. so there could be some consorted regional policy measure in the works

But with a risk-off sprint for the exits at the open this morning, gold traded to a high of $1589.00 and silver to $18.3800. The market has retraced since the initial clamber, but demand remains firm on dips.

Liquidity is at a premium with Lunar New Year holidays in China, Singapore, Hong Kong, Korea, Taiwan as well as Australia Day which may have exacerbated moves

Oil prices got hammered to the tune of 2 % at the open as the market continues to move into full bear mode and price in worse case scenarios. This despite Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud performing his best Hans Brinker routine, suggesting the sell-off is “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand,” ( Reuters). But upticks continue to get sold. And with a possible 1 % haircut to Chinas GDP as a result of the domestic virus break out, it's hard to argue the direction of travel, especially given the current oil price linkage to the Chinese economy.

Traders (or Algos) sliced through resting stops on the March 2020 contract on incredibly high volumes for an Asia holiday. Globex is showing 57,211 WTI contracts going through so far this morning. Oil positions could be at risk on a deeper dive as long oil contract bullish bets remain elevated on a 6-month context (Jan 24 +520.6 K vs. Oct 11 +355 K)

How bearish is it ?? traders hardly blinked at the news the US embassy in Baghdad came under attack from rocket fire overnight, mind you there was no damage and no threat of supply disruption.

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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