Subdued Asia

Asia was not doing anything much today, as market participants turned cautious, perhaps choosing to focus on several developments concerning central bank action.

Shanghai City
Source: Bloomberg

If anything, I would say that Asian stock indices turned to the downside in the afternoon, led by Chinese equities. The decline in the Shanghai Composite was mostly across the board, although we saw a bit of a bright spot in the real estate sector which gained 2% on the day.

This was despite a rather mixed Chinese property data, which showed that the home price recovery in October has slowed, as tier 2 and tier 3 cities were the laggards. Traders might be expecting policy moves from the government relating to the property markets, as President Xi Jinping has pledged to ease housing inventory after the government cut interest rates last month.

Previously, the PBOC has reduced the down-payment requirement for first-time buyers in lower-tiered cities from 30% to 25%.

Overall, the renewed weakness in the commodity complex may have dampened the appetite for Asian equities. The Bloomberg Commodity Index slumped to a 17-year low. The Shanghai and Shenzhen composites lost over 1%. The Nikkei erased early gains to end the day nearly flat at +0.09%. The ASX 200 hung on to the 5100 handle, helped by positive performance of the Australian banks.

 

Currencies

The Dollar Index trimmed some gains after powering to a seven-month high of $99.756. The index was seen pulling back towards $99.500 in late Asia, ahead of the release of the FOMC minutes for the October meeting. As there were no post-decision press conference for last month’s FOMC meeting, the markets will be closely monitoring the minutes to assess if there were more concrete discussion on the timing of the rate increase.

I feel the minutes will complement the recent statements of Fed official, which is that a December rate hike is more likely than not. This would lift the Fed fund futures pricing further, and we could see the probability shifting beyond 70%.

Although EUR/USD remained on the downtrend, there could be strong support around the $1.06 area, with the $1.05 handle being the key barrier. ECB President Draghi’s speech this Friday would provide some sense of what the central bank will do in December, where many are pricing in further easing action, in the form of an extension to the September 2016 deadline or an expansion of the QE programme or even both. USD/JPY stayed buoyant above 123.

However, expectations that the BOJ is unlikely to announce any adjustments to the monetary policy tomorrow, probably limited further upside.

 

Singapore

The STI was sold off from the get-go and quickly sank below 2900. The weak lead from the US session and soft commodities have likely pile on the pressure. The index remained below 2900 throughout the session, as Chinese stocks also came under pressure. The strong selling pressure in DBS and UOB as well as in Singtel have pulled the STI down. The downward trajectory since late October looks set to continue, and a close below 2900 will reinforce the trend.

 

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