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Asia morning update

Geopolitical concerns appear to be setting in full force in the overnight session and Asian markets could experience some of these jitters in the day.

Wall street
Source: Bloomberg

While still under the shadows of the Syrian strike, the market has a new story to follow and that is the deployment of a nuclear-powered aircraft carrier to waters surrounding the Korean Peninsula. The markedly unusual move had been explained as a reaction towards North Korea’s provocations and have fuelled concerns that further tensions may emerge. Certainly with the hardening of the stance by the new US leader, the concern could very much be justified.

For the markets, the reaction had been apparent. The most notable change was a pick up in the fear gauge, the CBOE volatility index or VIX, spelling a 9.2% spike. The index rose to the highest level since early December 2016, ending Monday’s session at 14.05.

Wall Street meanwhile saw near-neutral changes in the day despite the choppiness. While technical indicators suggest that prices continue to look for a breakout from the current symmetrical triangle setup, the underlying driver may be the anticipation of corporate earnings ahead, keeping changes almost to a standstill. 

SPX Sector Returns
Source: Bloomberg

As things stand, the energy sector had probably been the only apparent winner in the past week, riding on the rally in crude oil prices. WTI futures was last seen crossing the $53.00 per barrel (bbl) mark, helped by the disruption to supply from Libya while geopolitical concerns have also given investors reasons to get into the crude oil market. Additionally, the market has also pencilled in a 1.5 million barrel drawdown in crude oil inventories for the upcoming EIA report and had likely been pricing this expectations in. API report will be due in US hours today, expected to pre-empt the official report.

Monday’s US session also saw an appearance by Federal Reserve chair Janet Yellen, touching on topics regarding economic conditions and monetary policy. Little fresh insights had been offered leading to muted reactions in the market. With the sudden pick up in geopolitical concerns, the JPY however gained the upper hand amongst major currencies. USD/JPY slipped back once again to trade on either side of $110.80 as we pen this at 9.00am Singapore time.

Early movers in the Asian regions saw near neutral movements, with the exception of the Nikkei 225 which had been a victim of the USD/JPY slide. Pressure from the geopolitical tensions could weigh on investors’ minds and keep gains capped for local markets. Watch for a Q&A session with Federal Reserve Bank of Minneapolis President Neel Kashkari, G7 news conference and data including Germany ZEW survey, Eurozone industrial production and UK price inflation figures today. Asia would see Malaysia’s February industrial production being the highlight.

Yesterday: S&P 500 +0.07%; DJIA +0.01%; DAX -0.20%; FTSE -0.01%

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