After a sea of red on regional stock markets yesterday, Asia appears to be letting out a collective sigh of relief this morning as European and North American stocks stabilized in the overnight session. The Dow Jones, S&P and Nasdaq all closed flat with the US dollar enjoying a sideways day against major and emerging market currencies.
Bond yields continued to move lower with negative yields on the 10-year German bund and Japan JGB. The US yield curve from the 3-month to the 10-year collectively moved slightly lower, but the smell of panic we experienced on Friday seems to have dissipated. The bond markets are still strongly suggesting the world economy will slow in 2019, but anyone writing off the US dollar, as a result, might want to look at relative yields between the US, Japan and Europe first.
Asian markets could regain some of yesterday’s losses today after a calm Wall Street session. Indeed, the Japan Nikkei has enjoyed a bright early session, rising 0.80% in the first hours of trading. Confidence remains fragile though with markets susceptible to headline trading on a quiet data day, US Consumer Confidence this evening being the highlight.
Thailand’s fiendishly complicated voting system and a delayed announcement have delivered no clear winner with both major parties claiming the right to form a government. Until the election quagmire is resolved, gains on the Thai baht and Thailand stock market could be limited in the days ahead.
Speaking of quagmires, the quicksand keeps sucking UK Prime Minister Theresa May further in with the UK Parliament defeating her government yet again in a Brexit vote and seizing control of the process. Parliament will now vote on a series of alternative Brexit ideas with a view to gaining a majority consensus.
Somewhat lost in Parliament’s delusion, the European Union (EU) only granted a short Brexit extension to allow PM May the chance to pass her version of the Brexit deal, not anyone else’s. As such, it remains to be seen whether: a) May keeps her job; b) the EU will even consider alternative proposals; or c) the EU finally washes their hands of the entire process and cuts the UK loose with little more than a cheery bonne chance. A hard Brexit is not off the table but given the events of this morning, I suspect a multi-year extension is the most likely outcome, if only because the EU leaders are probably not sure who is actually in charge of the Government at the moment.
FX
We are expecting a quiet day today in the regional forex markets with local currencies happy to trade in sideways ranges following a consolidative overnight session. Asia will likely prefer to wait for more clarity from the Northern Hemisphere before deciding its next move.
For those wondering why sterling (GBP) has not moved post the ructions in the UK Parliament today, I can only surmise that the markets (which are strongly anti-Brexit) feel the plan to torpedo Brexit is coming together nicely, and no further action is required for now.
Equities
In Japan, the Nikkei has had a bright start to trading with Hong Kong, China, and Taiwan all opening in the green. We’ve seen a pause for breath in the market today after yesterday’s sell-offs, and Asia will likely use the session to unwind some of those panic-induced losses.
Oil
Oil is enjoying a small relief rally with both Brent and WTI rising by 0.35% to USD67.50 and USD59.00 a barrel respectively. The price action has a definite no-news-is-good-news feel about it today as we await clarity on US-China trade talk progress and direction from the bond market.
Gold
Gold was the big winner overnight rising 0.70% to USD1,322.00 per ounce, as delayed safe-haven buying finally lifted the yellow metal. Gold remains unchanged in early Asia but seems poised to benefit more strongly from risk aversion flows going forward, as bond yields fall to negative in some developed markets. Since bottoming at USD1,280.00 an ounce in early March, the technical picture now has a very constructive, positive look.