Asia Morning: It’s The Safety Dance

Asia markets have opened with a cautiously optimistic tone this morning, following a similarly cautiously optimistic session across most asset classes in North America. The US continuing jobless claims rose slightly but were offset by a fall in new jobless claims. The US factory orders data came in as expected, and with no trade negotiation headlines of note, the street appears to be safety dancing to a no news is mildly good news beat.

OPEC’s meeting in Vienna kicked off yesterday and ran deep into the night. It announced that a further 500,000 barrels would be cut from the group’s production to support prices. The proposal now goes to the broader OPEC+ grouping today, which includes Russia, to get a further sign-off. Russia will likely grumble but is likely to agree. The real haggling being over the distribution of the cuts. Saudi Arabia is expected to shoulder the majority of the new reductions if push comes to shove, having priced its Aramco IPO at the top of price expectations yesterday. It is unlikely to want to upset all the Mom and Pop investors who oversubscribed the issue, at a $1.7 trillion valuation, by seeing oil prices fall over OPEC+ disagreements.

Japan announced a crowd-pleaser sized stimulus package yesterday of $240 billion to support growth, acknowledging that its monetary policy is reaching its limits. In a zero per cent world, they won’t be the only government forced to open the fiscal spigots in 2020 if the global economy continues slowing. The package was well-timed, as Japan Household Spending released this morning, collapsed by a mighty 11.50% for October and -5.10% YoY. Part of this can be attributed to the hike in sales tax, but it cannot be denied, that the Japanese consumer remains in a deep freeze.

Asia will continue its safety dance today, likely to be joined by Europe, as global markets await this evening’s US Non-Farm Payrolls data. It is expected to recover to circa 180,000 jobs after last months unspectacular 128.000 print. With an FOMC meeting next week where the Federal Reserve is expected to hold rates steady, it would probably take a huge downside miss to sway them. That said, a disappointment tonight will have the lemmings screaming for further rate cuts, and would likely see equities and the dollar fall with gold the beneficiary.

All eyes in the region will be on Hong Kong this weekend with a first officially sanctioned protest march scheduled for tomorrow. Hong Kong has been relatively quiet this week following the council elections, with the hope on both sides that a large turn-out does not turn violent. Should the worst occur, the Hang Seng may come under renewed pressure on Monday morning.

Next week will be a busy one with the UK General Election sure to spur volatility in Asia, as the results come in on Friday morning our time. Wednesday and Thursday will feature rate decisions from the Federal Reserve and ECB. The Sterling has out-performed this week as traders have priced in an outright Conservative victory. It will be a wild ride lower if the polls have got it wrong.

December 15th is tariff-day with $146 billion due to be slapped on Chinese goods by the US. Although progress towards an interim agreement has taken on a Brexit-like tortuousness, at least both sides appear to be still talking. Trade headlines will continue to flip-flop sentiment in an already volatile cocktail next week. Keep on safety dancing.

Equities

Wall Street finished slightly higher overnight as a lack of negative trade headlines and benign US data was enough to support stocks, but was not enough to fully reinvigorate the rally. The S&P rose 0.15%, the Nasdaq rose 0.05%, and the Dow Jones climbed 0.11%.

That same theme has seen Asian markets rise gently this morning. The Nikkei is 0.35% higher, the Hang Seng 0.70% higher and the Shanghai Composite is 0.20% higher. The Australian All Ords has risen 0.25% and the Singapore Straits Times is 0.16% higher.

We are expecting a quiet session to close out the week, trade headlines aside, as Asia follows Wall Street’s lead and awaits the main events in the US this evening.

Currencies

The US dollar was slightly weaker against the majors overnight with the dollar index 0.25% lower at 97.40. Overall though the session was a directionless one, as markets await tonights Non-Farm Payrolls.

A similar theme is expected in Asia as currency markets prepare themselves for tonight and the slew of risk to come next week.

One notable performer was the British Pound (GBP), climbing once again by 0.40% to a new weekly high of 1.3160 as markets continue to price in an outright Conservative election victory next Thursday. Sterling’s next resistance is at 1.3200, followed by 1.3400. I won’t argue with the reasoning, but above 1.3200, much good news will have been baked into the GBP, and thus some caution should be exercised.

Oil

Oil was surprisingly calm overnight given OPEC was meeting yesterday and announced a 500,000 barrel increase in its production cuts. Part of that may have been the late announcement as the meeting ran into the Austrian night. Part of it was that there was no detail on who would be cutting and by how much. Mostly I suspect, it is because the increase in cuts has to be signed off by the broader OPEC+ grouping that meets today.

Oil traded in a narrow, but choppy range with Brent crude futures edging 0.40% higher to $63.35 a barrel, and WTI futures unchanged at $58.35 a barrel. Both contracts remain unchanged in Asia this morning, and the region’s traders are likely to stay in hibernation mode ahead of the OPEC+ meeting today, and the Non-Farm Payrolls this evening.

Gold

Gold edged one dollar higher to close at $1475.90 an ounce, as it traded in a  quiet $1472.00/$1480.00 range overnight, content to watch and wait for events from afar. Risk hedging ahead of this evening’s data and weekend event risk seems to be supporting gold on any dips below $1475.00 for now, a theme I expect to see continuing in Asia.