Tuesday, December 24, 2019

Capital Markets: "Christmas Eve Market Update"

What a difference a year makes.
From Marc to Market:
Overview: The holiday has already shut several markets, and those that are open are lightly traded. Equity markets are mixed but little changed in the Asia Pacific region while the European benchmark, the Dow Jones Stoxx 600, was hovering around the record high. Benchmark bond yields are slightly softer. The US dollar is showing a firmer profile against most of the major currencies, but the Norwegian krone and Swedish krona had resisted the pull to edge higher. The JP Morgan Emerging Markets Currency Index has slightly higher for the second session. Gold has quietly taken out a three-month downtrend that was found near $1480 and is moving within striking distance of $1500. Oil is consolidating its recent gains, and the February WTI contract held support near $60 a barrel.

Asia Pacific
Beijing seems to move between deleveraging and strengthening growth, and as the year winds down, it seems to have moved to the latter.
The Japanese economy was hit with a double whammy of the tax increase and tsunami. The body blow appears to be easing though the economy may be contracting by about 0.5% this quarter. India's economic growth has slowed considerably, and ironically the problem emanates from one of the same areas that challenged China, shadow banking sector. The demonstrations across India have seen more deaths in a couple of weeks than in the months of protests in Hong Kong. South Korea's recent export figures for the first 20 days of December are promising. Exports were off 2% from a year ago and 8.1% above the first 20-days of October. Exports to China were up 5.3%, and December will likely be the first month in more than a year that shipments to China rose. Exports to the US fell by 3.4% but rose 6.2% to Japan. Semiconductors, which are South Korea's largest export, were off 17%, which represents a modest improvement compared with recent months. Imports fell 0.5% from a year ago and rose 9.1% from a month ago.

The dollar has been confined to about a five tick range around JPY109.40. There are two option expirations today to note. Both are for $390 mln. One is at JPY109.40, and the other is at JPY109.55. The Australian dollar closed yesterday above its 200-day moving average (~$0.6905) for the first time since March 2018. The holiday has sapped the buying enthusiasm, and the recent high near $0.6940 remains intact. The Chinese yuan recouped yesterday's minor loss, and the dollar held above CNY7.0 in uneventful turnover. A poor showing by Modi's BJP in a state election (Jharkhand) seemed to weigh on the rupee. It is the second state election lost in recent months after Modi won a second term back in May. Protests against his new citizenship initiative are widespread and have resulted in 24 deaths.

Before the weekend, the euro had slumped about $1.1065 after holding above $1.11.
The lack of participation kept it pinned near the lows yesterday, and it remains near there today. Like yesterday mild selling pressure was seen near $1.1095. In the thin markets, the risk may extend toward $1.1050 in the coming days. Sterling finished last week a touch below $1.30, and yesterday's brief foray above there brought in new selling. It reached almost $1.2900 yesterday. Today it has not been above $1.2950. Recall that in three weeks through December 17, speculators in the futures market increased their gross long sterling position by 21k contracts to 59.3k. It was the largest since September 2018. We suspect that the bulls have pared their positions amid the buy the rumor sell the fact activity since the election. Sterling returned to the $1.28-$1.30 band that persisted from mid-October through late November....