Following a US holiday on Friday, Asia has shrugged off the COVID-19 clouds that dominated the weekend press and is basking in a positive start to the week. Asian equity markets have made a strong start, with the US dollar easing lower across the board.
Financial markets have long shown a herd immunity to the COVID-19 pandemic, although the headlines across the weekend gave no solace to the real world. COVID-19 continues to wreak havoc across the US Sunbelt and Latin America, while a disturbing trend of localized lockdown has emerged internationally, stretching from Australia to Spain and onto Great Britain. However, only Australian markets appear to reflect those concerns this morning.
Australia and Malaysia rate decisions
The data calendar this week is a much quieter one, after last week’s blockbuster. In Asia, the highlights will be tomorrow’s Australian and Malaysian rate decisions. The Reserve Bank of Australia (RBA) will undoubtedly stay unchanged at 0.25% with no mention of negative interest rates. What they may express though, is concerns about the recent rally in the Australian dollar. That may be enough to induce a short-term correction lower. Bank Negara Malaysia (BNM) will almost certainly cut 25 basis points to 1.75%. There is a decent chance, though, that they may cut 50 points to 1.50%, given recent inflation data plunging into negative territory. The recovery of the ringgit in the past two-months may embolden their hand as well.
Elsewhere, the US ISM Non-Manufacturing PMI is released this evening. The expected recovery inactivity should be equity supportive as the US returns from holidays. Euro-zone negotiations continue this week over the size, scope and details of the regional COVID-19 recovery package. Again, if a compromise agreement is hammered out in a very European way, that should provide a boost to European equities and notably, the euro itself.
Hong Kong security bill
Hong Kong concerns are fading as fast as they began, as the new China imposed security laws allow money to talk without the annoying interference of protestors. This story still has more to run in a geopolitical context. Canada suspended its extradition law to the SAR over the weekend, and the US Congress passed its Chinese officials censure bill. President Trump has not signed it, but that does not mean some sort of retaliatory measures is not on the way. They most certainly are. The scale of those measures will dictate whether geopolitics will have more to say on global financial markets.
With a relatively second-tier week of data ahead, the immunity of the peak-virus herd is likely to dominate proceedings. That suggests that equities, commodities, energy and Asian emerging market currencies will be notable beneficiaries. With the market in “forward-looking” mode again, only a dramatic scaling-up of US-based COVID-19 lockdowns looks like to scuttle proceedings, given that markets are completely ignoring them elsewhere.