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Asia Wrap: We Know China Is Sneezing But Will The Rest Of The World Catch A Cold

Caution reigned supreme today in markets as Wuhan went into shutdown and those that were unfortunate enough to have China risk to cover were forced to do so amid dwindling liquidity on both the Yuan and SHCOMP.
Stephen Innes
Asia Wrap: We Know China Is Sneezing But Will The Rest Of The World Catch A Cold

We know China is sneezing. The big question remains if the rest of the world catches a cold.

If the flu does spread, then the defensive macro allocation game plans will kick in with full force. In the meantime, traders are left to weigh up the anticipated China fallout against the backdrop of the current global growth recovery. While the calculus is not coming up roses, it’s far from a market panic. Still, if risk aversion starts to spread beyond Chinas borders and the usual suspects luxury, travel, and tourism, then we will likely see a more significant dive into safe-haven assets.

It was a very poor tale of the tape today as China markets were absolutely hammered

Currencies

Risk traded heavy in Asia, and both USDJPY and yen crosses came under pressure. There has been a bit of a relief rally as Europe walked in, but overall, price action is very rangy in G-10.

Gold

Gold has seen some haven interest, and while there is growing angst, that Wuhan flu could trigger a SARS-like event. But without a significant hit to the global economy, it’s unlikely to trigger a dovish Fed reaction, so unless there’s a real threat of a pandemic, gold topside could be limited. But non the less Gold continues to provide a decent safe harbor.

Oil

Oil traded very poorly this morning so the SXEP will likely remain under pressure. Outside of flu induced demand devastation concerns, supply remains plentiful. U.S. crude stockpiles rose last week by 1.6 million barrels, against expectations of a drop, the American Petroleum Institute said early this morning

ECB

The ECB meeting today is the primary macro catalyst; investors got excited at President Lagarde’s first meeting when fiscal plans were discussed, and this helped push rates and the Euro higher for a period. However, the market is setting up for a dovish event, so anything hawkish, in particular fiscal, will see a more positive reaction for rates and the Euro.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

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