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Asian Market Update – Wednesday: Asian Markets Cautious on Rising Expectations for US Rate Hikes and Lingering Geopolitical Tensions

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Cautious markets

The Big Question: How long will the cautious tone last?

Major Asian indexes were largely unchanged on Wednesday, as investors appeared to have adopted a cautious stance after US Federal Reserve Chair Janet Yellen boosted expectations for a rate hike this year and the North Korea nuclear issue continues to linger.

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In Japan, the Nikkei 225 was down 0.29 percent to 20,270.97 at midday.

In Greater China, stocks were also largely flat with very moderate gains. The Shanghai Composite Index gained a slight 0.05 percent to 3,345.27. In Hong Kong, the Hang Seng Index was up 0.42 percent to 27,627.77.

In South Korea, the KOSPI index was up 0.01 percent to 2,374.40.

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Down under, the ASX 200 was down 0.33 percent to 5,652.40 at midday.

US Fed chair Janet Yellen on Tuesday said the Fed’s decision to raise interest rates to cut borrowing costs was appropriate amid “significant uncertainties,” though such a move might have “misguided” strength in the jobs market and inflation.

The markets views Yellen’s defense of the Fed’s rate hikes earlier as hawkish, and that another rate increase is more likely in December. Though recent indications showed that the Fed is on track for its rate decisions, Yellen’s speech further boosted expectations.

Geopolitical tensions on the Korean Peninsula appears to have calmed a bit as the US is focused primarily on a domestic issue – protests by football players during national anthem – and the White House clarified that the US has not declared war against North Korea.

The US and North Korea has been engaged in a war of words that includes threats of North Korea shooting down US bombers and launch a nuclear war, and the US “totally destroy” North Korea if it was forced to do so.

Though Asian investors have been showing resilience to the North Korea problem, actions by the rogue nation tend to affect markets over the short term.

Main Market Movers – Mid-day Asian Trading Session

Indexes Value at Midday Daily Change
Japan-Nikkei 225 20,270.97 -0.29%
China-Shanghai Composite Index 3,345.27 0.05%
Hong Kong –Hang Seng 27,627.77 0.42%
South Korea-KOSPI 2,374.40 0.01%
Australia-ASX 200 5,652.40 -0.33%

Cryptocurrencies

Prices of cryptocurrencies were pointing higher overnight during the Asian trading session on Wednesday.

At midday in Asia, the bitcoin price tacked up 0.91 percent to $3,923, still below the $4,000 level. The price of bitcoin has been under the $4,000 mark since September 20 and has been consolidating around the $3,900 level.

Etherum also gained 0.62 percent to $290.74 at midday in Asia. Etherum has been trading below the $300 level since September 12, when it dropped below that mark following regulatory changes in China.

Litecoin was up 0.75 percent to $52.72. Litecoin has traded relatively flat since mid-September, stuck in a trading range between $44 and $57.

Also, news in the cryptocurrency world is that US Billionaire Mike Novogratz, who has been investing heavily in cryptocurrencies and blockchain, said the cryptocurrency market is going to be “the largest bubble of our life time.”

Currencies

The Japanese yen lost 0.14 percent against the US dollar at midday Monday to 112.36 per dollar, after Yellen’s statements about interest rates pushed up the greenback.

The Chinese yuan gained 0.09 percent against the US dollar to 6.6309.

The Australian dollar also lost 0.14 percent on the dollar, changing hands at 1.2694 per dollar at midday.

Commodities

WTI Oil gained 0.10 percent to $52.11 per barrel.

Brent Crude was up 0.15 percent to $58.62 per barrel.

Gold gained 0.13 percent to $1,294 an ounce.

Business News across Asia

In China, positive news came out of Beijing. The Chinese Ministry of Commerce announced that it would cancel a long-held policy that requires foreign companies that want to set up a branch in China to obtain approval from the government.

Take away: That’s a sign that China will further ease restrictions on foreign companies operating in China.  Talks of opening up the massive financial market have also emerged in recent days. Several wholly-owned foreign private funds have already been granted license to develop funds for the Chinese market. 

In India, a search for answers after the Indian economy showed slowing signs in the first half of the year has emerged and so far many fingers are pointed at a vast tax reform called the goods-and-services tax or GST (aka a sales tax). Although many have argued that though the GST was well-intended to solve complex tax issues among the country’s largely-independent states, it has seen little progress, according to a Bloomberg report.

Take Away: The GST was long expected by foreign companies because navigating through the current tax and other regulatory systems with different Indian states was, many companies have said, a mountain of work.

Featured image from Flickr.

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Market Overview

More Powerful than an Emperor

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The elections in the Czech Republic have gone largely as expected but things are far from over. Andrej Babis is also known locally as the ‘Czech Trump’ not only because of his personal wealth but also because of his Czech First anti-establishment populist views.

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Unlike in the USA however, winning an election in a Parliamentary system doesn’t necessarily guarantee control. Babis’s ANO (Yes) party has won 29% of the vote so they will need to partner up with one or more of the other eight parties in order to form a majority coalition. The task will not be simple, especially since Babis has already stated that he will not work with some of the parties and vice versa.

These type of negotiations can sometimes go on for quite a while. For example, the Netherlands is only just getting their government in place this week after a deadlock elections more than seven months ago. Over in Germany, Chancellor Angela Merkel isn’t expected to settle on a Government until some time next year.

In Japan, on the other hand, Shinzo Abe has won a two-thirds majority so will have no need for wheeling and dealing. He now holds more power than the emperor himself and is free to continue on his stated mission to aggressively devalue the Yen.

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@MatiGreenspan
eToro, Senior Market Analyst

 

Please note: All data, figures & graphs are valid as of October 23rd. All trading carries risk. Only risk capital you can afford to lose.

Market Overview

After the bloody referendum in the Spanish region of Catalonia, things have not died down. In fact, tensions have continued to heat up. Prime Minister Mariano Rajoy has now stated that he will soon strip the Catalonian Government of their power and hold a new election to replace the separatist local government of Carles Puigdemont.

The ball is now in the Catalan’s court. Puigdemont has several options. He can himself call for a snap election in Catalonia or he can simply accept the one that Rajoy has forced on him. A third option would be to make a more aggressive push for independence claiming that Spain has just again violated their rights.

No matter what he decides to do it is unlikely to bring calm as the doors for negotiation are now shut. The EURUSD is sinking this morning and now holding tight to temporary support (yellow) at 1.1750, if it passes there it could likely meet key resistance (red) at 1.1650.

More Powerful ECB

Of course, all the political updates we’ve mentioned above are minuscule when compared to the power of the European Central Bank.

The ECB’s monthly injections of €60 Billion per month have been propping up the stock markets and keeping the Euro down for the past three years. This Thursday, the ECB is largely expected to give some sort of guidance on the future of their massive stimulus package.

We know that they have been talking internally about reducing the injections to €30 Billion as of January and to keep the program going at least until September. In normal market conditions, it’s easy for them to leak these type of internal discussions to see their effect on the markets. But with all of the political uncertainty, their usual tactics may be less effective.

Here we can see the German Dax Index hesitating near it’s all time highest levels. Is the hesitation due to governmental negotiations or the rumors of less stimulus going forward?

Bitcoin ATH

Celebrations could be seen across the eToro network over the weekend as Bitcoin reached another all time record high of more than $6,000 per coin. The overall market cap (price per coin times number of coins in circulation) has for the first time surpassed $100 Billion before pulling back.

This very significant milestone clearly cements the role of bitcoin in the future of our global economy. As more people learn about the technology and how to use it, the more useful and valuable it will become.

For those that say “blockchain without bitcoin” just take a look at this chart showing bitcoin’s dominance over all the other cryptocurrencies in circulation…

The bitcoin network is all about consensus and at this time, the consensus is all about bitcoin.

Let’s have an amazing week ahead!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.
The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

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Market Overview

Asian Market Update – Monday: Tokyo Gains after Election Landslide, Minor Losses in China, S. Korea

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Tokyo streets

The Big Question: Will a new term help Abe to revive the world’s third-largest economy?

Asian stocks were trading in a mixed mode Monday morning, with nice gains seen in Tokyo after Prime Minister Shinzo Abe’s ruling party got a two-third majority in the election and slight losses in Greater China and South Korea.

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In Japan, the Nikkei 225 surged 0.93 percent to about 21,658 right before midday, after opening at around 21,709.

Investors were responding to Sunday’s election results, which gave Abe’s party 312 out of 465 seats in the parliament, effectively securing Abe another term. The solid win for Abe suggested continued fiscal and monetary easing under under his economic policy program dubbed as Abenomics.

Before Sunday’s election, the Nikkei closed higher for a 14th straight day on Friday. Monday’s gain was also supported by a weaker JPY against the USD.

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In China, the Shanghai Composite Index was down 0.02 percent to about 3,377 before midday. In Hong Kong, the Hang Seng Index lost 0.66 percent to around 28,298, after opening the session at 28,557.

Fresh data out China on Monday showed that the growth in home prices is cooling, following a barrage of measures from mainly local governments to contain the overheated housing market. Average home prices rose 6.3 percent year-on-year in September, slowing from 8.3 percent in August.

In South Korea, the Kospi was down a slight 0.05 percent to around 2,488 shortly before midday.

Down Under, the ASX 200 gained a minor 0.01 percent to around 5,907, remaining relatively flat from 5,908 at the same time on Friday.

Market focus this week:

In the US, markets are closely watching President Donald Trump’s pick for the Fed chair position. News reports cited Trump as saying over the weekend that Stanford University professor John Taylor and Fed governor Jerome Powell are among the candidates under consideration and a decision is coming shortly.

Main Market Movers – Mid-day Asian Trading Session

Indexes Value at Midday Daily Change
Japan- Nikkei 225 21,658 0.93%
China-Shanghai Composite Index 3,377 -0.02%
South Korea-KOSPI 2,488 -0.05%
Hong Kong –Hang Seng 28,298 -0.66%
Australia-ASX 200 5,907 0.01%

Cryptocurrencies

Prices of main cryptocurrencies were pointing lower on Monday during the Asian trading session.

At midday in Asia, bitcoin was down 0.18 percent to $5,958. Bitcoin is now down about $200 from the high of $6,156 reached on Saturday following a strong two-day winning strike on Friday and Saturday.

The price of ethereum lost a slight 0.68 percent to about $292 before midday. Ethereum dropped below the $300 level on Sunday.

Litecoin fell 2.11 percent to about $55.30 at midday. The virtual currency has been trading steadily around the $60 mark since Wednesday. Litecoin is currently in its third day of a losing strike, dropping from $61 on Friday.

Currencies

The Japanese yen lost 0.22 percent the US dollar at midday Monday to 113.76 per dollar.

The Chinese yuan lost 0.19 percent against the US dollar at 6.6311 per dollar.

The Australian dollar also lost 0.13 percent on the dollar, changing hands at 1.2779 per dollar at midday.

Commodities

WTI Oil was up 0.08 percent to $52.07 per barrel.

Brent Crude lost 0.02 percent to $57.86 per barrel.

Gold was down 0.34 percent to $1,276.03 an ounce.

Business News across Asia

In China, focus remains on the ongoing 19th National Congress of the Communist Party, which is expected to produce a new lineup of leadership for the powerful politburo.

Take Away: Markets would be paying attention to the new leadership to search for clues on economic and monetary policies. However, don’t expect anything else than continuation of the current path forward.

In Japan, the government announced that Prime Minister Shinzo Abe, who just emerged from a big win on Sunday’s election, spoke to US President Donald Trump over the phone. The two, once again, agreed to increase pressure on North Korea over the nuclear issue.

Take Away: Tensions on the Korea Peninsula remain high and fragile, with new missile tests from the North expected at any moment now. However, markets are getting used to these provocations so we need more than just the usual missile launch to create panic.

Featured image from Grips.ac.jp

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Analysis

5 Things to Watch Next Week: Earnings Bonanza, Bitcoin in Danger Zone, Trump’s Tax Reform, The Dollar Rally, The US Yield Curve

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1.            $4.5 Trillion in Market Cap Reporting

So far, the US earnings season has been a positive affair, as the most important companies, especially mega caps, beat the estimates across the board, lifting the major indices to new all-time highs in the process. Next week, is calendar will be full of another huge batch of key earnings, such as Microsoft (MSFT), Google’s parent Alphabet (GOOG), ExxonMobil (XOM), Amazon (AMZN) and Visa (V).

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With the overbought readings in the Dow, the S&P 500, and the Nasdaq, there is not much left in the tank for the equity rally, and the long-term prospects are not better by any means. That said, trying to pick a top in such a rally is futile, but controlling the Fear of Missing Out is not an easy feat. The correction will come, without a doubt, and it will either bring a trading opportunity as in August or a confirmation for the bears.

Dow 30 Index, Daily Chart Analysis

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2.           Bitcoin Reaches Target but Uptrend Remains Intact

The new all-time highs in BTC have been the most important move in the cryptocurrency segment this week, even as Ethereum‘s major update made headlines earlier on. As the short-lived break-out of ETH and some of the other major altcoins faded away, Bitcoin’s dominance reached levels not seen for months, surpassing 58% as the coin reached the $6000 level towards the end of the week. While the long-term picture is clearly overbought for BTC, we wouldn’t rule out another leg higher towards the range extension target at $7000, but pocketing most of the recent gains is probably the way to go. The quick and deep corrections in the segment always come when the last bears had given up hope, and we are close to that state.

BTC, Daily Chart Analysis

3.           Trump Tax Plan Might Live After All

As the Senate passed the 2018 budget resolution this week, the new tax bill got much closer to passing this year than previously thought. While a lot of experts agreed that the controversial proposal had a good chance of failing at one of the many legislative hurdles, but he Senate’s decision opened up the way for a short-cut and if the GOP speeds up the process of writing the bill, the much-awaited tax cuts could arrive very soon. The next step is to pass the budget bill in the House, while tackling the opposition towards the actual bill in the Senate and the House. So while the process will be grueling, the market already hailed the first step with a rally, and the progress could be a major driver for stocks and the Dollar in the coming weeks.

4.           The Dollar Showing Stability

With the focus still on the next Fed Chair, and the above-mentioned tax reform, the Greenback had a choppy but slightly bullish week, even compared to the relatively strong Euro. The Yen, the Pound, and the smaller majors all lost considerable ground compared to the USD, with the New Zealand Dollar falling the most after the announcement of the new coalition. Technically speaking, the Dollar is not out of the woods, but it seems that a higher low formed on the daily chart of the DXY, and that could have a major implication for all markets. Should the Index post a new swing high next week, the door could open for a major rally in the battered currency.

Dollar Index (DXY), Daily Charts

5.           The US Yield Curve is Collapsing

As short-term Treasury yields are rallying thanks to the hawkish tone of the Fed, and the modest economic numbers, the longer end of the curve is lagging severely. That represents the doubts regarding the long-term growth potential of the US economy, and is usually a strong precursor of a looming recession.

Some analysts argue that raising interest rates this late in the cycle is a major policy error, but with the extremely loose monetary policy of recent years, the normalization must begin, or the Fed will be out of options in the case of an economic shock. In any case, long-term investors should keep a close eye on Treasuries, as the bond market is usually a better predictor of troubles ahead than the stock market.

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday CANADA Wholesale Sales 1.1% 1.5%
Tuesday CHINA PPI 6.3% 6.3%
Tuesday GERMANY Manufacturing PMI 60.1 60.6
Tuesday GERMANY Services PMI 55.5 55.6
Tuesday EUROZONE Manufacturing PMI 57.9 58.1
Tuesday EUROZONE Services PMI 55.7 55.8
Wednesday AUSTRALIA CPI 0.8% 0.2%
Wednesday GERMANY IFO Business Climate 0.4% 0.2%
Wednesday UK Prelim GDP 0.3% 0.3%
Wednesday US Core Durable Goods Orders 1.1% 2.0%
Wednesday CANADA BOC Rate Decision 1.0% 1.0%
Wednesday CANADA BOC Statement
Wednesday US New Home Sales 556,000 560,000
Wednesday US Crude Oil Inventories -5.7 bill
Thursday EUROZONE ECB Rate Decisiion 0.00% 0.00%
Thursday EUROZONE ECB Press Conference
Thursday US Unemployment Claims 236,000 222,000
Thursday US Pending Home Sales 0.7% -2.6%
Friday US Advance GDP 2.7% 3.1%

Featured image from Shutterstock

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