Asia rally continues but China stutters

Asia has picked up on the positive lead from US trade and extended its gains from a buoyant session yesterday.

Source: Bloomberg

With the rally managing to last more than a day, I feel the Fed will be pleased it managed to find the right balance with its language. Attention now turns to Japan, where the Bank of Japan (BoJ) meeting concluded without any additional measures announced. However, the statement and press conference could still bring some volatility at some stage during Asian trade.

Judging by the price action in USD/JPY and the Nikkei, optimism is growing around Japanese officials looking at measures to reignite the economic recovery following Prime Minister Shinzo Abe’s re-election. Finance Minister Amari has also been on the wires saying Japan is set to benefit from the declining oil price and the yen.

With Japan one of the world’s largest oil importers, its large manufacturing and transport industry is benefitting. USD/JPY is back above ¥119.00 and I feel this is the beginning of the next leg higher for the pair.

Spiking interbank rates a concern

While most of Asia is tracking well, China has been a laggard today as issues continuing to emerge for the world’s second-largest economy. A concern for China at the moment is the spike in 7-day repo rates, which have topped 6% in today’s trade.

The People's Bank of China (PBoC) was reportedly offering short-term loans to banks yesterday to ease pressure on short-term borrowing. On a more positive note, China has revised the size of its economy by $308.8 billion. Analysts feel this is likely to help lift the size of its GDP and could see it reach its GDP target.

While China is likely to engage in short-term operations to ease liquidity, investors will remain focused on whether stimulus is on the cards early next year. For now though, the cracks are showing in Chinese equities and this remains the real threat to the recovery.

To an extent, the conclusion of the Fed has removed policy risk for global markets but global growth concerns will undoubtedly soon return to haunt markets. 

Banks lead ASX 200

The ASX 200 took off and never looked back today in a broad risk-on session. Materials and energy names got off to a very good start but the price action has waned throughout the day. Presumably the fact commodities remain choppy has something to do with this.

As a result, some investors will be looking to take advantage of the recovery, using this as an opportunity to close positions. Bargain hunters who had waited for a catalyst before buying stocks on their wish lists will be using this as an opportunity to accumulate.

The financials have been rock solid today and have really underpinned the rally. Over the next two weeks volume will be light, activity will be limited and any moves could easily be exaggerated.

Euro weakness returns

Ahead of European trade, the major bourses are set to extend their gains. There isn’t much going on in equities but renewed weakness in EUR/USD is likely to gain some interest. The big news in Europe yesterday was around negative deposit rates for Switzerland as the pressure on the Russian economy impacted the nation.

This pressure is also likely to affect other European nations as Russia predicts a shrinking economy if the oil price weakness persists. Vladimir Putin spoke on the economy and warned of $40/bbl oil.

Greece will also come back to the fore after the first attempt to elect a president failed; the next attempt will be on Tuesday. Earlier this month, EUR/USD printed a low of $1.2247 and that’ll be the level to look out for in the near term.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.