Markets
Asian equities traded bid today after a chorus of "keep calm buy stocks" was heard echoing across dealing rooms in Asia this morning after China noted additional cases and deaths related to virus declined.
The market continues to price in further easing by the People's Bank of China. I think 10bp MLF and LPR cuts are primarily priced in, but RRR cut and or anything more aggressive than 10bp will be a surprise factor that is starting to get priced into the markets. Clearly, "Mo Money" doesn't me "Mo Problems" for equity investors in Asia.
Asian Currency Markets
The RBNZ kept rates on hold at 1%, as expected, and said interest rates would likely remain on hold for the rest of 2020. NZD jumped as traders priced in Governor Orr's hawkish tone.
USD/CNH long liquidation continued as the U.S. dollar trades lower on the back of a recovery in risk sentiment as Asia FX markets continue to beat to a familiar drum. Although stocks are in the green, equity outflows continue to rise, so traders are walking back some of that Yuan over-exuberance as London flows kick in. At least some sense of normalcy is kicking in, from my not so bullish perspective anyway.
Malaysia 2019 GDP Y/Y: 4.3% v 4.5%e (slowest annual growth in 10 years) - as household spending continuing to slow. Bank Negara Malaysia (BNM) has already responded to this issue with one 25bps rate cut in January. However, this lower than expected GDP raises the chances for one more 25bps rate in Q2; The ongoing coronavirus outbreak has only strengthened this view. After the Ringgit opened up positively as global commodities were bouncing higher on the improved Covid-19 sentiment, the Ringgit is falling again, given the increased prospect of a rate cut getting priced into the curve.
SGD forwards have moved higher. 6m FX was -15.5 offered but gapped to -13.5 bid after a headline that a bank in Singapore has evacuated its office after confirming a coronavirus case. USDSGD continues to remain well bid despite the sell-off in USDASIA as via the tourism channel, the impact is easily quantifiable, and the market lean has been most punitive to the more vulnerable economies on this standard – THB and SGD
Thailand's Deputy PM says Q4 2019 GDP may be less than 2% y/y; Q1 2020 GDP less than 1%. (Bloomberg). USDTHB jumped to 31.19 from 31.11. But adding to the top side momentum is the massive turn around in funding to +0.6 in overnight from -1 on Friday suggests that the market is short cash, which means that the market is buying USDTHB on the dip.
Oil markets
Bloomberg reports that at least three Asian oil refiners will take delivery of less crude from Saudi Aramco (SE:2222) than planned in March, as the coronavirus outbreak dents fuel demand and creates a glut of alternative supplies.
But the market is reading much into Russian President Vladimir Putin meet up with Igor Sechin, his "energy tsar," on Tuesday, although nothing has been formally announced. Still, the market is paring back shorts in case the outcome of this meeting triggers an actionable OPEC+ emergency meeting.
Amazingly, a 1.5 % + uptick in Asia hasn't triggered a bigger position flush suggesting traders aren't in a picnicked rush to give up shorts, especially those who realize that we're at a massive inflection point for oil prices H1
Gold markets
Positioning could be a bit of a concern for gold investors as fast money account is on the offers as London walks as Covid-19 risk has turned more benign. And with the RBNZ failing to hit the panic button, who's economy is far more exposed to China, it suggests other central G-10 central banks will likewise take a wait and see approach also.
So far, only those ASEAN Central banks whose economies are vulnerable to the tourism effects have proactively slashed interest rates or, in the case of Singapore, are laying the groundwork. Still, with a plethora of global risk simmering on the backburner – supply chains and demand contraction notwithstanding, I still think it's too early to downgrade Covid-19 to a nasty case of the sniffles and gold will remain bid on a dip.