Markets back on risk-on mood

Following geopolitical turmoil, US equity market has ploughed on in gains on Tuesday, clocking fresh highs for the DJIA. 

Source: Bloomberg

This optimism would be hard for Asian markets to ignore in the day today.

The immediate reaction towards geopolitical tensions yesterday had been the flight to safe havens. However, against the broader risk-on mood in the markets since the US elections, the pockets of unrest had not been enough to tip the general market into a shift. ‘Resilience’ has been the word describing the markets’ reaction thus far, though the localization of the impact could in part account for the quick recovery of the markets.

The S&P 500 index saw gains accelerate to 0.36% in the second day of the week, led by the financial, consumer discretionary and industrial sectors. The highly watched earnings release from Nike have also shown better-than-expected results despite earlier concerns. The market’s attention had instead been on the Dow which rose to a fresh high of 19987.63 and flirted with the 20,000 level. In line with recent trends, the move has been reckoned to be a calm one as the index charged on despite the retreat in implied volatility into the end of the year.

Notably, the surge in WTI futures prices could provide a boost for Asian markets this morning. Following the report released by the American Petroleum Institute (API) indicating crude stockpiles had been drawn down by 4.1 million barrels, WTI futures rose to trade at $53.50 per barrel (bbl) levels from sub-$52.50/bbl levels earlier. The expectation of a 2.5 million barrels drawdown in the EIA report due today also underpins this optimism.

Asian markets are seeing this dual lift from the overnight leads and the higher energy prices though pressure remains with the concern of capital outflow as the US dollar continued the rally. The USD index briefly broke above the 103.50 level to print a fresh 14-year high and was last seen waffling just below the level into Wednesday Asian session. A weaker yuan fixing was sighted though this was short of recent low last Friday, slated to weigh on the region. 

The day ahead will have the markets focusing on Malaysia’s November inflation rate and the Bank of Thailand’s central bank meeting. Notably, Japan will be releasing their October all industry index midday for a reflection of the economic activity at the start of Q4.

Yesterday: S&P 500 +0.36%; DJIA +0.46%; DAX +0.33%; FTSE +0.38%

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