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London Open: Regional reopening optimism gradually giving way to Hong Kong single system risk

Market Analysis / 2 Min Read
Stephen Innes / 28 May 2020

Markets

 

After a positive start to the session, regional reopening optimism has gradually given way to the Hong Kong going to one system risk, alongside poor optics from the Korean GDP downgrade.

 

However, with S&P futures holding above the 200 DMA putting headroom above 3000, the NASDAQ is preparing for an assault on 9500. At some point, amid the constant dip buying, it becomes like 2010/2011 again where everyone argues the bear case in the fictional world and prices go straight up every day in the real world. 

 

Korea 

 

USDKRW is edging higher following the Bank of Korea's decision to cut its policy rate by 25bp to 0.50%, as expected. Commodity-exporting and high-yielding currencies have outperformed low-yielders recently. In an environment that increasingly values carry over the cyclical stock market inflow characteristics of the Won, KRW could struggle in the near term.

 

The Australian Dollar 

 

AUDUSD price action has been choppy. Positive risk sentiment and USD weakness were initially supportive yesterday but demand for EURAUD has incessantly weighed Australian dollar fortunes as the Aussie dollar market remains trade headline nervous after reports suggest China is expected to impose restrictions on coal imports, starting with shipments from Australia. Given the lengthening laundry list of tariff targets, I guess the question has to be at what point will China reduce iron ore imports from Australia?

 

Optimism about the EU's recovery fund proposal has boosted Euro crosses. Given the gnarly trade risk dynamics expressed via the Yuan, the Aussie could remain under the thumb until traders feel more confident to re-emerge from their trade war risk US dollar umbrella. 

 

Oil markets 

 

No surprise as oil markets are struggling today as the bullish rebalancing narrative has given way to lingering supply concerns after the colossally larger API inventory build, which is getting compounded by reports Russia may ease up on supply cuts. All the while, the oil market’s trade war sensitivities remain in focus as consensus is pivoting to the US imposing tariffs on China. The downward revision on Korea's GDP is not helping the matter either. 

 

Gold markets

 

With more focus on the HK going one system risk compounding the view that the US will soon reimpose tariffs on China, effectively scuttling the phase 1 trade deal, gold has been in good demand in Asia this morning. Increasing trade taxes as the world is trying to recover from the Covid-19 economic beat down adds another level of economic uncertainty to the nascent recovery. Indeed, increased economic uncertainly has an uncanny way of lighting up gold any day of the week, especially as it pertains to trade war risk.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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