Overview: Equities in the Asia Pacific managed to mostly shrug off the drag of the losses in US equities yesterday. China and India could not escape the pull, but most other bourses were higher, led by Singapore and Hong Kong. It was the second consecutive week that the MSCI Asia Pacific Index fell. The US and European benchmarks are paring this week's small losses. Their six-week advances are in balance. Neither Lagarde's first speech as ECB President nor the flash November PMI readings provided new incentives for traders. Bond markets are mixed, with Asia Pacific yields moving higher, while European and US yields are mostly a little softer. On the week, the US 10-year yield is about six basis points lower at 1.75%. Most European bond yields are also lower on the week, with the exception of Spain and Portugal. The dollar is narrowly mixed, with the Scandis and dollar-bloc currencies firmer. A disappointing flash PMI has weighed on sterling. Emerging market currencies are trading with a heavier bias, though the South African rand is a notable exception. For the week, the rand and Turkish lira are the best performers, with roughly a 0.5% and 0.8% gain respectively. With today's small gains, gold is turning higher for the week, while oil is paring this week's gains but is still up for the third consecutive week.
Japan reported October CPI and the November flash PMI. Headline consumer prices were steady, rising 0.2% year-over-year, the same as in September. Excluding fresh food prices to arrive at the core rate, CPI rose 0.4% after a 0.3% increase year-over-year in September. It is the first increase since April. Stripping away fresh food and energy, consumer prices rose 0.7% in October, which is the most in three years. The increase in the sales tax on October 1 seems to be masked by the decline in electricity, gas, mobile phone service, and free child education. If the tax increase did not bolster inflation, it also did not derail the economy, it appears. The flash PMI ticked up. Manufacturing rose to 48.6 from 48.4, while services rose back above the 50 boom/bust level to 50.4 from 49.7. The composite stands at 49.9, improving from 49.1.
Australia's preliminary November PMI went in the other direction. Manufacturing slipped to 49.9 from 50.0, and services fell to 49.5 from 50.1. The composite eased to 49.5 from 50.0. Although the Reserve Bank of Australia meets next month (December 3), the market is not pricing in a cut until Q1 20. The market appears divided over whether it will launch an asset purchase program.
Hong Kong is to hold district elections Sunday. Chief Executive Lam had threatened to postpone the election, but this would likely only antagonize the situation further. The pro-government parties hold about 3/4 of the 452 that are being contested out of a total of 479 seats. However, the pro-democracy parties are fielding a record of more than 500 candidates. Around 4.3 mln people can vote compared with 3.12 mln in the last district election. The pro-government parties are widely expected to lose in what is being heralded as a referendum on the demonstrations that are nearly six-months-old. A strong showing by the pro-democracy parties would ostensibly lay a good foundation for the more important Legislative Council election next year. Still, Sunday's vote is unlikely to change the way Hong Kong is governed nor sap the energy of the protests.Separately, the Hong Kong court allowed the government to reinstate the ban on face masks for seven days.
Some expect the Trump Administration to play down the recently passed measures to support the demonstrations in Hong Kong and will encourage China to keep it separate from the trade negotiations like it has sought to compartmentalize Huawei. However, Beijing may not accept this. Hong Kong is a red line for it. In its protests, China has made it clear in no uncertain terms that if Trump signs the bills into law, it will retaliate. If Trump does not sign the bills, which were passed with hardly a dissent, he will be widely criticized, and it would undermine this claim of being hard on China. Separately, but related, US officials hinted that even if a trade deal is not struck with China by the middle of December, the new tariffs that were threatened to be implemented (15% on roughly $160 bln) might be suspended as were last month's.
The dollar has been pinned in a narrow range against the yen all week (~JPY108.30-JPY109.1), which is inside last week's range. For the past two sessions and today, the dollar has been blocked near JPY108.75. It has not been below JPY108.25 since November 4. Despite disappointing PMI, the Australian dollar found support near the week's low (~$0.6785). Last week's low was near $0.6770. There is an A$1.1 bln option at $0.6795 that expires today. Without an advance above roughly $0.6815, the Aussie will record its third consecutive weekly loss. The US dollar traded higher against the Chinese yuan today and has risen in four of this week's five sessions. Near CNY7.0420, it is poised to close at its best level this month.