Wall Street continued easing overnight despite better-than-expected U.S. GDP data, with the S&P, Dow Jones and Nasdaq all closing down 0.30%. This extended the malaise in stocks that began in Asia yesterday following poor China and Japan data. President Trump calling a premature end to the North Korean summit in Hanoi had traders fretting that the U.S.-China trade talks could end the same way. They could, but the two are entirely different beasts, and negativity is premature.
Wall Street should have been boosted by U.S. GDP data that beat expectations with the economy growing at an annualised 2.90%, a number most developed economies can only dream of. The warm afterglow was short lived though as the quarterly number showed yet another fall for the third quarter in a row. This followed a pattern of slowing growth around the world, which started in China and Europe. This also further reinforces the recent trend of the world’s central banks pirouetting to an easing bias, led by the Federal Reserve.
As stocks wobbled on the U.S.-North Korea summit and economic concerns, the street saw a rotation into safe-haven U.S. dollars, which saw the greenback strengthen against both major and emerging market currencies.
It will be interesting to watch the reaction by Chinese stocks today as MSCI announced overnight they will be increasing their weighting in the MSCI market index to 3.30% throughout 2019. Selected China mid-cap stocks will also join, which has surprised markets expecting a heavyweights-only bout.
Due to be released at 0945 Beijing time, the Caixin China PMI Manufacturing data will be closely watched today following poor official figures yesterday, with a forecast of 48.7. The Eurozone CPI will follow before the week finishes with the U.S. ISM and Manufacturing numbers. Given the general – and perhaps premature – malaise that has settled over equities, a low print on any of these numbers could have an outsized adverse effect on stocks and emerging-market FX today.
FX
The U.S. dollar benefited from haven inflows overnight as the seas of red on the Asian and European stock markets prompted traders to reduce risk. USD/JPY rose to two-month highs and opened just shy of resistance at 111.50. Regional FX was on the back foot overnight, and with the anaemic Wall Street close, this could continue into the Asia session, mainly if the China data is weak. The fall-out from the Trump/Kim summit should be limited for the Korean won (and KOSPI) because South Korea is closed for a public holiday today.
Equities
Regional stock markets sank yesterday led by China and Japan’s poor numbers. With no help from Wall Street overnight, Friday’s opens are likely to be soft across Asia initially. In China, we will know soon enough whether the MSCI announcement was a buy the rumour, sell the fact, or bring fresh buyers to the market. The Caixin PMI data will likely overshadow MSCI; however, a negative print could bring new selling with it.
Oil
Brent Crude and WTI were almost unchanged overnight with a stronger dollar balancing supply concerns. Brent closed at USD66.25 a barrel and WTI at USD57.00 a barrel in a listless session. Both should trade quietly in Asia today consolidating the week’s gains and awaiting new impetus.
Gold
Gold had a volatile session trading in a USD10 range before ending the day USD5 lower at USD1,314.00 an ounce. A reduction in tension between India and Pakistan, a stronger dollar and declining but still respectable U.S. GDP data combined to swipe the legs out from under the yellow metal. Gold’s critical support on the charts lies at 1,300.00 with longer-term liquidation possible should it fail. Gold could be supported in Asia though as traders reduce risk ahead of China data and the weekend.