The surge in US markets last Friday was triggered by the strong payrolls report which cemented the view that the economy can withstand higher interest rates. It also reinforced the robust employment gains, which satisfied the Fed’s first mandate on job growth. Clearly, this paved the way for a December rate tightening.
That European shares were sluggish, was more of a result of disappointment at the ECB’s additional easing measures than an outright risk aversion. But looking across the various Asian indices, the gains in major markets such as Australia, Japan, China and Hong Kong were not uniform.
Australia and Hong Kong were fumbling with feeble gains, whereas Japan was up +1%. The non-uniformity suggests that risk appetite is not solid, and there is still quite a fair bit of cautious undertones pervading the markets. While there is more clarity after the weekend, most notably on the US Fed’s imminent rate hike, investors are still not quite sure how the markets will react to the various risk events littered throughout December.
The debacle at OPEC’s meeting on 4 December was unable to forge an agreement with both OPEC members and non-OPEC nations to collectively reduce output in an attempt to support oil prices. Instead, we witnessed splinters in the once-formidable cartel, where individual agendas seemed to override collective objectives.
In the end, it appeared that there is not even a collective quota set. The group has been pumping out production above the current (or expired?) level of 30 million bpd for the past 18 months, and this is likely to remain unchanged. Crude prices were pressured lower, with the WTI price capped below $40 for most of Asia. The next price target to watch is the six-year lows of $37.75 on 24 August.
China closed higher, where smaller-cap shares outperformed the larger companies. The Shenzhen Composite was up +1.3%, compared to +0.3% on the Shanghai Composite. The China A50 ended -0.2% lower, easing just below 10,500 points. Market volatility may pick up in the subsequent sessions as China releases a batch of economic data, which will be closely monitored for the health of the Chinese economy.
China’s trade data for November is due on Tuesday, 8 December. The consensus expects improvement in the exports and imports readings, although they will still be firmly in the contractionary zone. Inflation figures are due on Wednesday, 9 December, where the trend is hardly going to change.
Consumer Price Index (CPI) is expected to continue growing at a slow pace, while growth in the Producer Price Index (PPI) will remain negative, primarily due to persistent declines in commodity prices. China might also release the aggregate financing data and monetary aggregate numbers next week (anytime within 10-15 December), where the growth in new yuan loans will be closely watched.
I would be on the lookout for any weak macro signals which could elicit fresh hopes of additional government stimulus. This could provide a renewed boost to Chinese shares. However, looking through a broader perspective, China stock markets appeared to have entered a consolidation period.
Singapore was mostly higher, as the STI moved above 2900 early on, powered by a broad-based rally. There were some strange moves in the index. Car distributor Jardine Cycle and Carriage rebounded over 3% after falling sharply last Friday, which warranted a SGX warning. The counter jumped sharply last Wednesday and Thursday, surging a combined +11.2%, which saw the weekly performance at +9.5% or +S$3.06. Other outperformers were Genting and SIA.
Meanwhile, the currency markets were fairly muted. The dollar index was able to maintain above 98.0, although a break of 98.50 was not in the plans. EUR/USD lost the grip on 1.09 but the pair was supported at the 1.08 level. USD/JPY was capped below 123.50, while USD/SGD returned above 1.40.
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