ASIA STOCKS: Hong Kong Equities Continues Sell-Off, HSI below 20,000
China mainland equities are slightly higher today with the CSI 300 +0.10%, however the gains have been largely attributed to Telecom stocks, with most other sectors in the red. The HSI has dropped for a fourth consecutive day, and trading below 20,000 for the first time since late September, and losing 7.60% from Nov 8 highs. The decline was driven by concerns over Donald Trump’s re-election, which is expected to bring higher tariffs, trade protectionism, and increased inflation.
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GOLD: Steady on a Slower Fed and Disappointment from China.
- Gold prices were steady in Asian trading time today given traders pricing in a slower Fed rate cutting cycle and China’s Ministry of Finance release failing to provide new stimulus measures.
- Having slipped to $2,645 in the morning session, gold firmed back to Friday’s close at $2,655.
- Typically benefiting from rate cuts, Gold has performed well this year up over 20%.
- Following the stronger than expected September jobs report, the number of rate cuts for the remainder of the year has been questioned, with markets now pricing in less than two.
- Any further stronger than expected data could further challenge this and put a cap on gold’s upside into year end.
OIL: China Weighs On Crude As Market Awaits Israeli Retaliation
Oil prices are down today following Saturday’s disappointing China MOF fiscal announcement, with commodities generally weaker. Crude is off its intraday lows though. Brent is down 1.1% to $78.20/bbl after a low of $77.50 and WTI is 1.1% lower at $74.76/bbl after falling to $74.08. The USD index is up 0.1%.
- Soft demand from China, the world’s largest crude importer, has worried markets for some time. Recent fiscal announcements have been sparse on details, including the size of the stimulus, and seem not to include support for consumption and so have resulted in drops in the oil price at times when the situation in the Middle East isn’t deteriorating further.
- Israel is yet to retaliate for Iran’s October 1 missile barrage. The US thinks that Israel looks likely to target military and energy sites in Iran, according to an NBC report. The timing of the response remains unknown. Iran has said that it will hit back forcefully.
- The Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
CHINA: Weekend News Disappoints Global Investors.
- Over the weekend, China’s Ministry of Finance provided guidance as to areas of its focus in the coming months.
- The Finance Minister Lan Fo’An kept the government’s 5% growth target highlighting local government’s challenges in identifying, financing and executing on development projects that meeting specific criteria set by the Central Government.
- Local governments had budgeted significant amounts for these projects and official estimates are that only 50% of the budgeted amount has been utilized.
- Lan provided guidance on available budget headroom for further fiscal stimulus and that his ministry is considering new policies and new policy tools.
- Additionally, Lan indicated that the Central Government would allow a one-off rise in regional government debt limits to allow local governments to refinance existing debt, similar to the policy implemented in 2015 aimed at bringing on balance sheet the hidden debts so endemic in the system then.
- Although Lan did not announce new measures for the housing sector, he did reaffirm a desire and intention to continue to stabilize the sector. He discussed the potential for reducing mortgage costs and a focus on developers delivering pre-sold homes to buyers.
- Global markets have interpreted this as a disappointing ‘announcement’ from the MOF, with the Hang Seng down 1.5%, whilst onshore equities are modestly higher.
- What it appears to be is simply a re-attestation of what has been announced thus far and likely points investors focus to the next party meeting.
