Trade of the Day: Stocks hover near recent highs and oil firms as US Treasury yields rise, gold eases
Quote of the Day: “The Fed has entered a new dovish regime. This is the fourth round of mid-cycle “insurance cuts,” but never has it been this aggressive. Normally the Fed only cuts mid-cycle if there is a major financial crisis or a major weakening in the economy, including declining payrolls. This time, it cut rates three times with strong capital markets, above-potential GDP growth and strong employment reports. In our view, the Fed is not only trying to offset the trade-war shock, but wants to ensure the labor market remains hot and inflation overshoots the target before the next recession,” said BofA analysts in a report.
Number of the Day:. $1.7 billion. Targeted fund raising by telecom firm ZTE via a private placement of shares which will carry a 12-month lock-in.
Tip of the Day: “In 2020, we expect the external environment to be supportive of EM assets amid an improving global outlook. In our view, the Indonesia Government Bond (IndoGB) scores well across various carry criteria. Absolute yields are high with the 10Y just below 7%. IDR volatility is low, largely a result of Bank Indonesia’s focus on FX stability. Monetary policy easing, in terms of extent and pace of rate cuts, has been measured. Fiscal policy has been prudent with small but manageable slippages. Domestic inflation is subdued and unlikely to be a source of pressure on yields,” said Duncan Tan, a DBS strategist, adding there would be healthy foreign demand, because of Indonesia’s weight in global indexes. “IndoGB’s steep curve would offer more buffer/protection relative to Asia low-yielders.”
Financial markets clung to their highs while digesting details of the US-China trade agreement, which gives protection to property rights of American companies in China with the two countries agreeing to “refrain from competitive devaluations.” The two countries acknowledged that trade and economic structural changes resulting from the agreement and from other actions being taken by China to “open up its economy and improve its trade regime should lead to improved trade flows, including significant increases in exports of goods and services to China by the United States and other countries.”
The MSCI Asia ex-Japan index rose 0.25% while the Nikkei edged up 0.1% and the Australian S&P ASX 200 index was up 0.67% to 7041.80, crossing the 7,000 mark for the first time. Hong Kong’s benchmark also climbed 0.38% as healthcare, property and telecom sectors boosted the market.
Caution is set to weigh on investors’ minds.
“The signing of the Phase One trade deal is unlikely to spell the end of the trade war, and the disruption it has caused to Asian supply chains looks set to continue,” said Capital Economics analysts in a report.
“On the plus side, the deal reduces the chances of an escalation in the near term, and if the deal holds, the tariff stage of the trade war between the US and China is over. However, other sticking points remain unaddressed, including state aid rules, intellectual property protection and market access. In any case, the Phase One deal leaves most tariffs in place.”