Weak data, a possible flare-up in the U.S.-China trade tensions, and flatter U.S. bond yield curves all spooked Asian session traders to create a risk-averse trading environment.
- Australia’s retail sales jumps by 0.3% as expected vs. 0.1% increase in September
- Australia’s trade surplus narrows down from 2.94B AUD to 2.32B AUD in October
- Asian bourses weighed by Canada arresting Huawei’s CFO for extradition to the U.S.
Global trade war plot thickens
The biggest story of the hour is Canada announcing that it had arrested Wanzhou Meng, Huawei’s global CFO and only child of company founder Ren Zhengfei last December 1 for extradition to the U.S.
Word around is that she has violated the U.S.’ trade sanctions on Iran.
Huawei – the world’s second-largest maker of telecommunications equipment – has often been the focus of U.S. intelligence for trying to gain access to the 5G network.
Huawei confirmed the arrest in a statement and said that it has been provided little information of the charges, adding that it was “not aware of any wrongdoing by Ms. Meng”.
Meanwhile, China’s embassy in Canada criticized Canada and the United States, saying that
“The Canadian police, at the request of the United States, arrested a Chinese citizen who had not violated any U.S. or Canadian law,”
“China has already made solemn representations to the United States and Canada, demanding they immediately correct their wrong behavior and restore Ms. Meng Wanzhou’s freedom.”
A Canadian Justice Department spokesman shared that a court hearing for Ms. Meng Wanzhou has been set for Friday.
The announcement came days after Presidents Trump and Xi have agreed to a 90-day truce to work on trade-related issues between the U.S. and China.
Analysts now speculate that the arrest of a key Chinese tech titan would escalate trade-related tensions between the U.S. and China and even Canada and China.
Australia’s mixed data releases
Top-tier economic reports printed from the Land Down Under didn’t exactly inspire confidence among the bulls earlier today.
Retail sales grew by 0.3% in October, which is in line with market expectations and a bit better than the downwardly revised 0.1% growth in September.
Details tell us that clothing, footwear and personal accessory retailing led the increases while household goods also grew during the month.
Retail sales only makes up a third of GDP consumption, though. Factors such as utilities and vehicles-related spending need closer watching since they ARE included in the consumption equation but aren’t included in the retail sales report.
Australia’s trade data didn’t look much better. The economy clocked in a trade surplus of 2.32B AUD in October, narrower than the 2.94B AUD surplus we saw in September and below estimates of a 3.2B AUD reading.
Remember that the average trade surplus for Q3 2018 is 2.4B AUD, so October’s numbers don’t really point to a strong finish this year.
Both imports and exports contributed to the lackluster report. Specifically, imports jumped by 3.2% as higher prices and volumes of capital goods and fuel were bought.
Meanwhile, exports rose 1.3% higher thanks to strong coal and fuels and services shipments.
Overall risk aversion
The combination of renewed trade tensions, a flatter U.S. bond yield curve, and waning optimism over the possibility of the U.S. and China reaching a deal in 90 days all weighed on the Asian bourses.
- Nikkei is down by 2.11% to 21,456.6
- A SX 200 is down by 0.51% to 5,642.6
- Shanghai index is down by 1.28% to 2,615.823
- Hang Seng is down by 2.62% to 26,117.3
Commodity prices were a little more mixed, with gold taking advantage of dollar weakness and overall risk aversion while crude oil benchmarks were weighed by speculations of lower global oil demand and a more tepid production cut deal between OPEC and friends this week.
- Gold is up by 0.16% to $1,239.00
- Brent crude oil is down by 0.86% to $61.07
- U.S. WTI is down by 1.12% to $5.32
Major Market Mover(s):
AUD and NZD
The Aussie was hit by a double whammy of weak domestic data and overall risk aversion in the markets. Ditto for Kiwi, which also dealt with dairy giant Fonterra cutting its milk price forecasts for 2018 and 2019.
AUD/USD is down by 48 pips (-0.65%) to .7220; AUD/JPY is down by 87 pips (-1.05%) to 81.40; AUD/CHF is down by 54 pips (-0.74%) to .7197; AUD/CAD is down by 29 pips (-0.30%) to .9677; EUR/AUD is up by 104 pips (+0.66%) to 1.5708; GBP/AUD is up by 103 pips (+0.59%) to 1.7618, and AUD/NZD is down by 11 pips (-0.11%) to 1.0524.
NZD/USD is down by 23 pips (-0.33%) to .6874; NZD/JPY is down by 56 pips (-0.71%) to 77.51; NZD/CHF is down by 32 pips (-0.46%) to .6848; EUR/NZD is up by 57 pips (+0.34%) to 1.6504, and GBP/NZD is up by 35 pips (+0.19%) to 1.8494.
A combo of weaker crude oil prices and concerns that Canada will find it trickier to make good trade deals with China dragged the Loonie lower against most of its counterparts.
USD/CAD is up by 42 pips (+0.31%) to 1.3394; CAD/JPY is down by 63 pips (-0.75%) to 84.11; GBP/CAD is up by 46 pips (+0.27%) to 1.7050; EUR/CAD is up by 52 pips (+0.34%) to 1.5201, and CAD/CHF is down by 32 pips (-0.43%) to .7437.
Not surprisingly, the yen was king of pips during the Asian session as overall risk aversion boosted the low-yielding currency.
USD/JPY is down by 44 pips (-0.39%) to 112.75; GBP/JPY is down by 78 pips (-0.54%) to 143.35; EUR/JPY is down by 54 pips (-0.42%) to 127.87, and CHF/JPY is down by 35 pips (-0.31%) to 113.09.
Watch Out For:
- OPEC meetings start today. Will OPEC and Russia extend their production cut deal?
- 7:00 am GMT: Germany’s factory orders (-0.4% expected, 0.3% previous)
- BOE MPC member David Ramsden to give a speech in London