Asian equities and dollar in retreat

Summary:

• China’s trade surplus with the US widens, inflation comes in below expectations

• A handful of details concerning a US-China trade truce

• Asian stocks move lower, dollar loses ground

A reason for higher trade tensions

Asian equity markets have begun the new trading week on the wrong foot as investors are digesting the grim session on Wall Street on Friday as well as some data coming from the Chinese economy. Over the weekend we got trade and inflation releases from the world’s second largest economy and both could be seen as disappointing. First and foremost, a trade surplus in November came in at 44.74 billion USD which was the figure exceeding expectations set at 34 billion USD, however, both imports and exports saw a massive miss. The former grew 3% YoY (14% expected) while the latter increased 5.4% YoY (9.5% expected). While the higher trade surplus should be seen as positive for the economy, it has at least ambiguous tone in this case as higher trade imbalances could lead to a further trade war escalation. Indeed, the China’s trade surplus with the United States widened to 35.55 billion USD compared to 31.78 billion USD in October. For the period between January and November the surplus has totalled at 293.52 billion USD compared with 251.26 billion USD in the corresponding period last year.

This underlines the reason behind trade frictions between the two world's largest economies, and suggests that the US could lose patience soon and come up with higher tariffs when the 90-day suspension period comes to an end. In this regard it is worth mentioning a WSJ’s article concerning the US-China trade truce reached in Buenos Aires a week ago. The article includes some details such as China will purchase a large amount of goods and services including soybeans and natural gas purchases in “coming week”; China will consider reducing tariffs on US autos; China will offer broader access to US firms to its markets. On top of that, the temporary deal also prohibits of intellectual property theft. In turn, Robert Lighthizer, the US Trade Representative who was speaking with CBS, said that the 90-day period is a hard deadline for China after it the US will slap China with higher tariffs unless the two sides reach an accord. Finally, the inflation reading came out over the weekend as well producing a figure of 2.2% YoY compared to 2.5% YoY in October and 2.4% expected. Price pressure among producers also eased as PPI fell to 2.7% YoY from 3.3% YoY. Lower consumer prices were due to the declines in food and oil prices.

The US dollar index bounced off its resistance at 97.5 once again moved down. From this point of view the price could be heading lower toward 94.9 in the coming weeks - the first more important technical support. Source: xStation5

Markets down

Early European trading is bringing dismal moods from Asia where major indices have slid markedly. The NIKKEI (JAP225) lost 2.1% and the Australian ASX200 (AUS200) declined 2.3%. The Shanghai Composite is trading 0.6% lower while the Hang Seng (CHNComp) is trading 0.9% lower. Note that this performance could be ascribed to the ugly session in the US on Friday where indices marked declines ranging between 2.2% and 3%. Having a death cross already drawn in the SP500 (US500) one may suppose that the worst has yet to come. Hence, lower stock prices (on the back of higher rates, slower economic growth, simmering trade tensions) might be a scenario for the next year. In this environment the US dollar is performing quite poorly being down against its all G10 peers suggesting that traders are not interested in buying the greenback even if sentiment deteriorates. It is also reflected in US bonds with the 10Y yield trading slightly above 2.84% this morning, almost no change compared to the Friday’s closing.

The death cross in the US500 already materialized, the ominous sign for technicians. Source: xStation5

In the other news:

• Japan’s economy contracted 0.6% QoQ in the third quarter compared to a 0.3% QoQ decrease seen initially; the balance of payments produced a higher than expected trade deficit in October

• RBA’s Kend sees the next rate move to be up but he does not rule out a rate cut next too

• China’s copper imports declined in November for the first time this year

• Brexit: DUP confirmed it would vote against the May’s deal