Asian equities show a modest North/South divide
Fading Evergrande concerns and remarks from Powell about the high bar to rate hikes left New York in taper-be-damned mode overnight, with stocks rising powerfully. The S&P 500 rose by 1.27%, while the tech-heavy Nasdaq recorded a 1.04% with the cyclical-heavy Dow Jones leaping by 1.47%, probably being the most sensitive of the big three to future US rate hikes. The rally was even more impressive given that US yields also firmed notably overnight, reinforcing that you ignore buy-the-dip at your peril.
Asian markets are having a very mixed day with US futures maintaining their gains. There is a real North/South divide in Asian markets today. Japan is playing catchup and then some, after returning from holiday. The Nikkei 225 has powered 2.0% higher with the FOMO gnomes, like New York, out in force. The Kospi, by contrast, is unchanged, perhaps weighed by North Korea refusing to engage with President Moon’s call to officially end the Korean War. Taipei, by contrast, has leapt 1.0% higher. On mainland China, the PBOC’s dollop of liquidity today, totalling CNY 120 billion, appears to have settled Evergrande nerves. The broader Shanghai Composite is flat but the narrower Shanghai 50, containing SOE behemoths, is up by 0.60%. The CSI 300 has also rallied by 0.55% while Hong Kong is flat. China markets look keen to engage in a contained Evergrande story, but just can’t pull the trigger completely. Of the three main indices, Hong Kong is the most vulnerable as Evergrande is listed there. The nascent recovery in China markets remains at the mercy of their being no new negative Evergrande headlines.
Further south, ASEAN markets are maintaining a very cautious stance despite the impressive rallies in the US overnight. Clearly weekend US political and Evergrande risks are causing a sense of cautious pragmatism, and rightly so. Singapore is down 0.15%, with Kuala Lumpur falling 0.50% and Jakarta remaining unchanged.
Australian markets are also in the red although there appears to be a lack of concrete drivers behind the negativity. Reports that China may be looking for more ways to cap commodity prices and a more pragmatic view to Evergrande may be weighing on sentiment. The IMF downgraded its growth forecast for Australia for 2021 but upgraded its 2022 one. The ASX 200 and All Ordinaries are limping into the weekend down 0.40%.
Europe piggy-backed the US higher overnight, but with a mixed day in Asia and plenty of weekend risk ahead, not least the German elections, I expect European markets to open flat to slightly negative this afternoon. US markets will be at the mercy of the big line-up of Fed speakers and debt ceiling/spending developments.