Equity markets’ refusal to roll over has been impressive this last month as they use a selective narrative to rally after each trade-war-induced sell-off. The overnight session was a classic case, as markets across Asia, Europe and North America rallied as the White House announced a six-month delay on whether to impose auto tariffs on vehicles from Europe and Japan. Unnoticed or ignored in the supposedly improved trade narrative were German 10-year bunds plumbing new lows in yield terms and lower-than-expected US retail sales.

That reality is unlikely to last now the White House has turned its artillery on Chinese telecom giant Huawei. President Trump signed an executive order allowing the government to ban US companies from making purchases from companies deemed a “national security threat.” Earlier, the US Commerce Department had added Huawei to a list of entities that prohibits them from acquiring US-made technology and components without a government licence. If that’s not an escalation in trade tensions, then I don’t know what is, and it’s likely to take the gloss of any potential rallies in Asia today.

Let us also note the previously-mentioned auto tariffs were aimed at Europe and Japan, not China. A trade deal with China will not take trade tensions off the table for Washington DC by any means.

Asia has a busy day ahead, starting with Australian employment data at 0930 Singapore time (SGT). Notoriously volatile, Australia is expected to add 18,000 jobs. With the Australian dollar (AUD) already wobbling from a reluctantly dovish central bank, a high correlation to China, a falling housing market and a Federal election on Saturday, an undershoot could have an outsized bearish reaction on the AUD.

Malaysia announces its GDP growth at midday (SGT) with 4.5% growth YoY forecast. Indonesia’s central bank follows at 1530 (SGT) with its latest rate decision, widely expected to be unchanged at 6%. Like Australia, both Malaysia and Indonesia have an outsized amount of skin in the game vis-a-vis China with lower growth or a dovish central bank likely to provoke nervous investors to head for the exit.

 

FX

The US dollar index was mostly unchanged overnight as a lull in trade rhetoric saw currencies mostly steady. Regional markets could see some pressure today following the Huawei news and if the data releases prove underwhelming. Sentiment remains fragile, to say the least, and this will limit any gains by regional currencies against the mighty greenback.

 

Equities

The late session news on Huawei from Washington DC should bring equity markets in the region back down to earth this morning. The realisation that all things trade are not suddenly rosy will limit gains on Asian markets as the street awaits China’s response to this latest shot across its bows.

 

Oil

Middle East tensions are carrying the day at the moment on oil markets with Brent Crude and WTI both rising around 1% in overnight trading. Asia can expect a consolidative session as Middle East tensions support the downside while trade tensions cap gains.

 

Gold

Gold was almost unchanged overnight at USD1,296.00 an ounce, slumbering like the greenback in overnight trading. Gold seems to have reached a temporary detente at these levels with momentum weak to push it either way. The geopolitical premium appears to be baked into the price for now. 

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