Asia wrap: It's an around the globe risk-on relay race

Stephen Innes SPI Asset Management

Asia certainly rode the risk-on tailwind following the S&P 500's dazzling 2.3% leap, its sharpest rise since 2022. Looking for a green light in the murk, Asian traders found a glimmer in China's latest data, where consumer prices for July ascended more than anticipated. Despite the spectre of sluggish domestic demand—a bit of seasonal gloom tainting the picture—the inflation uptick still offers ample room for more policy juice.

The stage is set for a mild uptick in inflation in the months ahead, but don't expect this to put the brakes on further monetary easing. With inflation still on a leash and credit activity more a trickle than a torrent, the conditions are perfect for a bit more policy loosening.

The global market's rebound was turbocharged by promising developments from the economic titans of the U.S. and China, suggesting that their economic engines are humming with a bit more vigour than many had anticipated. Consequently, we find ourselves in a relentless "risk-on" relay race, with each market vying to outperform the other, turning global trading floors into a round-the-clock sprint for gains

This optimistic "risk-on" economic tableau lifted oil prices, with black gold perking up in response to the sunnier macro outlook. With the weekend on the horizon, traders keep a wary eye on the Middle East, braced for any sparks that might fly. Hence, the possibility of weekend hedges lifting prices further remains high.

In the currency markets, USDJPY bulls are trying to climb back in the game, re-energized by a sprinkle of dovish dust from the Bank of Japan. This resurgence in yen buying comes just as the buzz around the Federal Reserve's anticipated 50 basis point cut in September cools off a tad, thanks to robust U.S. job claims figures throwing a curveball at yen bulls.

In conclusion, what looked like a week headed for disaster has twisted into a surprisingly upbeat finale. The market’s dire straits at the start have morphed into Friday’s punchline, allowing traders a moment to catch their breath and recalibrate their strategies for what lies ahead.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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