Santa arrived a little later than expected this year. Asian equities followed the Wall Street Santa rally. In Tokyo, Nikkei 225 index rebounded impressively gaining 3.7% after heavy losses (more than 5%) on Tuesday. Hang Seng Index which reopened after the Christmas holiday rose 0.6 percent, while the Shanghai Composite index was up 0.5%. The S&P/ASX 200 Index rose 103.4 points or 1.9% to 5596.3 points, its best performance since November 2016. The price of oil soared on Wednesday, with Brent Oil rallying 8.8%, its biggest gain since 2016. The price rise was driven in part by positive market sentiment and comments from Russia’s Energy Minister Alexander Novak who said he saw a more stable and balanced oil market. While yesterday’s positive price action is definitely a positive sign, it’s still too early to conclude whether the market correction is over or more downside is yet to come. Such rallies are not uncommon in troubled times, and we have experienced many of them in past bear markets.
On the Lookout: Bloomberg reports that Asian markets are bracing an expected upswing in the rate of debt defaults as higher refinancing costs push high-risk borrowers out of the market. “We are setting up the business on the premise that we will see an increase in defaults in 2019,” said John Batchelor, Asia head for corporate finance and restructuring at the firm, adding that the company is looking to increase its headcount in Hong Kong and China. According to the latest Reuters survey, a majority of Germany’s leading industry groups expect weak growth around 1.5% next year but do not see a recession. US President Trump’s ‘America First’ policies, which is a likely headwind for German exporters.
Analysts at Standard Chartered are estimating Singapore’s Q4 GDP growth likely to print 2.2% y/y, similar to Q3, and capped by high base effects. “Our GDP growth tracker suggests upside risk to our Q4 GDP growth forecast. Our tracker is more reliant on readily available externally driven activity data, such as IP, which is still growing at a faster pace (albeit moderating) than domestically oriented sectors. We are cautious about being overly optimistic, as the services-sector recovery is tenuous. We expect growth to moderate in 2019, as external demand has likely peaked.”
Trading Perspective: Gold’s strong bullish momentum is still intact with prices regaining the $1270 level. US government shutdown and President Trump’s criticism of the Fed supports the precious metal. Technically, immediate resistance will be found at 1279 previous daily high and then the 1300 psychological round figure. On the flipside, 1263, yesterday’s low will be the first support.
The benchmark 10-year Treasury yields are down -1.10% below the 2.77% mark, offering some fresh trading impetus to the non-interest bearing and traditional safe-haven gold.
Euro bulls are in control today in early European session as La Repubblica, reported that the Italian parliament is said to vote on the budget by Dec 29th, maintaining the deadline for the budget approval that is by end of this year. The pair is currently trading at the daily high around 1.14, leaving behind the lows at 1.1351 and regained the 50-hour moving average. Bulls are now targeting 1.1422 pre-Christmas high and then 1.1486 the previous week high. EUR/USD will find immediate support at 1.1343 and 1.13 which is the previous week low.
USD/JPY is facing selling pressure, and the price is hovering close to the daily low at 110.82. Annualized Tokyo CPI for December is forecasted to come in at 1%, while the Japanese Unemployment Rate is expected to tick down to 2.3% from 2.4%. Annualized Retail Trade for November is forecasted to decline to 2.2% from 3.5%, and Japan’s preliminary Industrial Production for December is expected to decline sharply by -1.9% from the previous month’s 2.9% reading. The pair will find support at 110.13 yesterdays low. 111.41 is the immediate resistance, and more supply will emerge at 112.30 — previous monthly low.