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The lack of news and earnings means investors are finding it a difficult environment to operate in. US investors’ interest in emerging Asian markets failed to show through, with the exception of Indian ETFs, which gained 1.3%. One reason for this would be the HSBC Markit PMI, due for release later today for both India and Hong Kong.
Investors are betting on a high PMI number for India. Foreign fund inflows for EMEA this week were less than half of last week’s $2.6 billion. This indicates that risk appetite has curbed while the US issues play out.
Asian futures & commodities
Hong Kong futures are set to open lower, trading at -0.5% this morning, followed by Chinese H-shares - down 0.5% - and Singapore’s STI, down 0.3%. Selling pressure in Asian markets will not come as any surprise, given the lacklustre performance of US and European stocks overnight. We can see US dollar weakness is here to stay for the short term.
Commodities’ reactions are mixed, with copper futures for December holding steady at $327. Industrial metals such as copper have held up. The belief is that Chinese growth will be sustained at 7.5% this year, and that demand will be held steady.
Gold on the other hand continues to consolidate, with a bearish bias, with $1300 still holding. This uncertainty should have been good for gold, and yet it has failed to rally. This suggests that investors don’t expect this shutdown to go on for an extended period of time. India’s higher taxes for gold imports have had an effect on physical demand.
US Treasuries have seen the benefit of this government shutdown. Investors are flocking towards safe-haven assets. Treasury yields for five-year and 10-year notes have fallen in recent days, with the five-year yield below 1.4% at 1.37%, and the 10-year at 2.62%. This is a u-turn from last month, when investors were switching out of bond funds into equities.
The softer economic numbers and outstanding debt-ceiling issues are weighing heavily on investors’ decisions. The shift is happening away from shorter-term bills - closest to the debt-ceiling deadline - to longer-term bills, where the risk of a default is less likely.
While nobody expects the US to default, the longer politics in the US has a hold on the economy, the more likely investors are to become skittish.