Will the Fed hike again?
The US economy is in gear: wages rose 3.1% and non-farm-payrolls climbed by 250,000 in Friday’s report, increasing speculation the Fed will hike more than previously thought. 10-year Treasuries are back above 3.25%.
Otherwise, nail-biting has ensued ahead of tomorrow’s mid-term congressional elections in the US. Headlines saying Democrats have a slight lead on Republicans mean nothing, because the configuration of voting (as with the 2016 presidential elections) varies for each individual election. The elections’ impact on markets is extremely uncertain. Should Congress split (Democrats regain House, Republicans retain Senate), expect more volatility and an intensified risk premium. Unsettling investors are images of Iranians burning US flags and chanting “Death to America” on the near-anniversary of the 1979 Islamic Revolution, in the prelude to impending US sanctions. Oil prices were slightly lower, as waivers allow buyers to import Iranian crude for awhile. Medium term, sanctions will tighten oil markets and push crude prices higher. What to do? Short equities, long USD, but avoid safe haven in gold or JPY.
Asian shares lower amid multiple risk events
Benefitting from Chinese regulator support via policy measures, Asian shares have been benefitting from a positive trend, stimulated by the bounce in Wall Street. But uncertainties seem to take the ascendant, as trade talks between US and China taking place from 30. November 1. December 2018 is not expected to have the desired effect.
Indeed, uncertainties relating to Fed interest rate hike, Sino-US trade tensions along with US sanctions against Iran oil exports effective since today have favoured a risk-off sentiment among investors. The Hong Kong Hang Seng index was the largest hit, facing a sharp drop of -2.08% followed by Japanese Nikkei 225 (-1.55%), Blue chip Shenzhen CSI 300 (-0.83%) and the Shanghai Composite (-0.41%). Chinese shares remain the largest losers with drops along the -20% year-to-date.
Accordingly, investors’ attention will now be turning to US mid-term elections, where speculations count on the Democratic Party to win control of the House of Representatives. For now, G20 talks between Xi and Trump have a subdued, as analysts bearish outlook continue to weigh on Asian shares.
USD/CNY is expected to bounce back, as fears over trade tensions are taking the upper hand. Currently trading at 6.9284, USD/CNY is heading along 6.94 short-term.
