Hang Seng Birthday Rally
Hang Seng outperforms after the HK pro-democracy candidates sweep district council elections, and China issues guidance related to IP penalties.
China Committed To All Phases Of Trade Deal
Contrary to adverse media reports, China and the US are apparently very close to the phase one trade deal, and China remains committed to continuing talks for a phase two or even a phase three deal on equal footing, experts close to the Chinese government told Global Times.
Of course, this type of headline will be that much more believable when both parties schedule a date and venue to put pen to paper on phase one, and for the US to make an official announcement about delaying December tariffs. Such simple steps would go a long way to ensuring investors’ confidence in the holiday season.
But a significant trade roadblock looks to be falling after China’s State Council and the Communist Party’s Central Office said it would raise penalties on violations of intellectual property rights to address one of the sticking points in trade talks with the US.
Bitcoin: Volatility Seekers Paradise
Following this morning’s Bitcoin (BTC) note, bitcoin continues to get slammed in Asia. Sigh, regulatory clampdowns are proving to be BTC undoing yet again as China has declared war on cryptocurrency again. It was only a month ago that Bitcoin holders were reveling in the afterglow of China’s blockchain embrace, which was thought to include cryptocurrencies in that hug. What we are possibly witnessing is a reality check unfolding that while President Xi embraces the inherent blockchain technology, he may not be so eager to put his seal of approval on the coins themselves, as his global counterparts. When prices move traders naturally, get attracted, and for volatility seekers, and especially for those that can’t give it away, BTC looks attractive today. Even more so, when you consider it’s virtually impossible to find a buyer of vol in any other traditional cross-asset space like FX-Bonds or equities.
ASEAN Currencies
USD/CNH had a cheery start to the week with positive trade news’s re-balancing inflows also weighed on the spot price and will likely keep it offered into Tuesday. And while year-end hedging activity might keep a bid under the dollar, but with a possible Phase, one date to be announced current levels remains attractive for the trade talk bulls.
USD/Asia EM FX vols are better offered with spot not doing much other than gradually retracing the bids we saw in New York last Friday. With little on tap this week, volatility should remain offered into Thursday of this holiday-shortened trading week.
G-10 Currency Markets
With a plethora of significant events on the December horizon, I suspect the next few weeks will be more about hedging current risk rather than extending those positions. And one look at the upcoming calendar should reinforce that view. (German SPD Elections, NATO Summit, OPEC Summit, Aramco IPO, RBA, BOC, SNB, FOMC, ECB, and the UK Elections, as well as being one month away from year-end, and it’s the Thanksgiving holiday week in the US).
Gold Market
The story being discussed that China remains committed to continuing through all phases of trade negotiation as per the Global Times sent gold below the fundamental $1460 /oz level. This kind of positive trade talk rhetoric suggests US-China talks can morph into something much more significant than initially envisaged.
But if nothing else, gold may find support start of the year-end phase with many Bank research departments providing their outlook to 2020. Given the sluggish global economic data outside of the US , its going to be challenging for macro research department to put on a brave phase , despite trade talk optimism , UBS is already out with the doom and gloom suggesting “the FOMC Minutes last week reinforced the notion that the FOMC will only resume cutting rates if data force a ‘material reassessment’ of the outlook. Our forecast, if realized, will do precisely that. We believe that 1/2% growth, with payroll growth slumping to 50k, in the first half of the year will lead the FOMC to cut 3x. “