Asia Wrap : Decidedly Risk off feel heading into the European Open

Stephen Innes SPI Asset Management

Asia Equities

There has been a decidedly risk-off feel to Asia equities markets, but the sell-off which started as idiosyncratic and regionally contained in nature has begun to weigh on global risk sentiment quite convincingly as major indices are reacting negatively to the escalating trade friction between Japan and Korea not to mention the monumental slide in Samsung’s profits.

The global equity sell-off has increased demand for havens with the JPY, CHF and Gold all benefiting heading into the European open.

Also, after the strong payrolls report, there some concerns that Chair Powell could walk down some of the market aggressive Fed rate cut pricing, and this too is having a significant impact on the investor psyche.

Oil Markets

Oil markets are holding up better than I expected, especially with global equity markets turning south. More weight getting added the Middle East GPR index has oil traders back on headline watch.

Currency Markets

Turkish Lira

Most of today’s currency focus fell on the Istanbul school of Erdogan Economics 101 as the Lira weakened after the PM fired his central banker Murat Cetinkaya over the weekend. The proximity of the CBRT rate decision has prompted speculation of a policy cut which has steamrolled Tokyo carry trade position in Asia. Indeed, mixing politics and monetary policy is like mixing Vodka and milk when it comes to the market sensitive palate around central bank credibility and autonomy.

ASEAN Currency Markets

USD-IDR traded up to 14150 at the open vs. Friday's close at 14082.5. But very much in line with expectation as local bond sell-off against the backdrop of higher US rates but there remains appetite so sell USD on rallies and apart from any further rises in the US yields the current level should look attractive for investors.

USD-THB remained well bid throughout the session tracking the general USD sentiment but remained one of the weakest regional performers post NFP as the market position is very long THB, relative to other regional currency peers.

USD-KRW continues to languish with Kospi -1.8%. But export prospects look dismal even more so with Japan trade friction escalating as the Won offers the least appeal among the Asia currency basket.

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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