It was a case of picking a narrative to suit your bearish view overnight. Still, the sell-off could more about de grossing into an expected US election hiatus as hopes for a pre-election US stimulus talks stall. US e-mini futures are having a severe case of a directionless drift in Asia, as I suspect investors are giving up on any hope that they will see new highs ahead of election day on Nov. 3,
And the USD is rangebound on a broad-based trade-weighted basis as traders start to roll out their post-election playbooks.
Markets sank into the red as stimulus hopes that lifted stocks early doors quickly soured. Talks on fiscal aid continued, but the two sides remain reluctant to compromise, with House Speaker Nancy Pelosi saying that significant disagreements remain. In contrast, Republicans in the Senate continue to push a smaller aid package. Asia also slipped on the stimulus stalemate.
Meanwhile, global coronavirus cases exceeded 40 million, with the pandemic showing no signs of slowing. Broader macro risk indicators are mixed o/night with safe-haven assets generally for sale, although conversely, growth proxies such as oil are again weaker.
European equities are set to open a bit soggy, with cyclicals expected to struggle early. One should expect trading to be choppy to start the day, given yesterday's Euronext close.
Price action will be gripping in the context of how much is already priced in, with beats this quarter getting sold in the US in particular.
Brexit remains the critical near-term risk in Europe, although the market seems to believe that a compromise will be reached, with sterling relatively well bid in the past week or so.
As expected, the PBoC's 1y (3.85%) and 5y (4.65%) Loan Prime Rates were left unchanged. With the September data indicating a reliable economic recovery, One sure thing is that President Xi and PBoC will not let the market snatch defeat from the jaws of victory, and if needed, can still slice off an RRR or MLF cut into the year-end as the central bank has ample policy wiggle room.
Still in the lead up the Party Plenary. China-Sensitive assets could yet defy broader rangebound markets, especially with China's recovery in private consumption gathering momentum.
Number 2 of 4 key things to watch in Asia this week
IndoGB Auction Strong
It was another strong IndoGB auction today, with IDR83.02 trn of bids vs. a target of IDR20 trn. Indeed this is the highest amount of bids since the Aug. 11 auction (which is a low bar), but inflows have proved vital in the past two weeks.
So why hasn't USDIDR hasn't broken lower, with 10y IndoGB yields below 6.7%.
It seems to be more an issue of the broader USD stalling, as AUDIDR has gone 5% lower in a month, and CNHIDR has stopped rising since mid-September.
The British Pound
Choppy headline-driven price action in GBPUSD should persist. But the pound's resilience to negative news flows speaks volumes about the positioning optimism that a deal will go through. So let's hope constructive progress endures. Still, It feels like we are playing a pinball machine, getting bounced around but not going anywhere these days.
The Australian Dollar
The Aussie came under fire following dovish comments from RBA Assistant Governor Kent. The RBA minutes shortly afterward did little to change this dynamic. While it feels a bit like we are tethered to the end of the risk yo-yo string, G-10 FX traders know not to push back hard against a central bank dovish pivot, so I expect AUDUSD rallies to be sold over the short term.
The Swiss Franc
It was a soft start to the week for USDCHF. The test lower was driven by the rally in EURUSD on what seemed like large buying order going through the market yesterday in London. But looking at USD sentiment across the G10, I doubt that this move extends from here; it's more likely that USDCHF will remain rangebound.
EURCHF price action remains poor. The cross even failed to rally yesterday when EURUSD ground up 80 pips. Indeed, this is consistent with my view that it is best to trade the EU negative Covid currency expression via short EURCHF.
The Chinese Yuan
In the wake of the GDP miss, the USDCNH max downtrend has given way to caution as the market frets about a slowdown in China's recovery from here. But by no means will the market turn bearish on the RMB, though traders might pause for a cause ahead of the plenary.
The Chinese Communist Party's fifth plenum meeting (Oct. 26-29) is the next key policy event that will outline China's primary strategic medium-term economic priorities, which will likely include greater technological independence and steps to encourage private consumption.
The Korean Won
USDKRW has continued lower, breaking below 1140 amid general USD weakness and with USDCNH trending lower. Inflows continue in bonds and equities but have stemmed a bit. The WSJ reports that SK Hynix is nearing a deal to buy Intel's NAND business, but no significant FX impact is expected near-term. The curve remains flattish but better supported. I think this is hugely bullish for the Won and supports the Asia tech supercycle thesis. Asian economies are looking to move forward to compete for Tech supremacy rather than supply chain domination.
The prospect of further lockdown measures weighed on the oil markets, with OPEC+ warning of a "precarious" outlook for crude demand and hinting at a potential change in policy next month.
But oil is finding a bid on dips to WTI $40 WTI as few think OPEC will bring more barrels to market in January. The demand outlook remains the great unknown, with increasing social mobility restrictions in Europe. But an OPEC agreement to extend current quotas could protect the downside for oil.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies