Well, Chinese stocks may have been in a veritable free fall on Monday, but a combination of upbeat Chinese econ and downbeat US econ had other regional shares on the rise as investors bet on a slowing pace of policy normalization in the US.
Japan was closed, but the MSCI Asia Pacific Index hit a goddamn nine-year high for the second session in a row:
“It’s a positive signal that China’s economic growth has not only bottomed but momentum is picking up,” Margaret Yang, a strategist at CMC Markets in Singapore told Bloomberg by phone, underscoring the fact that although China’s batshit crazy equity markets didn’t respond to this morning’s econ numbers, their more sane regional counterparts did.
But again, the real story here is probably Yellen’s dovish lean on Capitol Hill last Wednesday and the soft CPI print that came two days later.
“With Yellen emphasizing that rate direction is on price inflation performance, markets are expecting an extension to the more accommodative environment after the inflation data,” said Jingyi Pan, market strategist at IG Asia Pte Ltd.
“It’s like the bar has reopened and people are coming back again for drinks,” BDO’s Jonathan Ravelas added. “There is no threat coming from inflation so the risk of another interest rate hike in the U.S. has diminished significantly.”
The KOSPI hit yet another record on Monday while the won continued to advance, hitting a 1-month high. As we noted last week, “nothing says bullish like nuclear war.”
Speaking of mushroom clouds, Bloomberg notes that “South Korea proposed resuming some military and humanitarian exchanges with North Korea while the National Red Cross floated reunion events for families split by decades of hostilities [but] North Korea didn’t immediately respond to the latest offers saying, on Saturday, that the South’s approach is a ‘series of sleep-talking sophistries that create even greater hurdles’ to talks.” So that’s fun.
Here’s a bit more from analysts:
CMC MARKETS (Margaret Yang)
- The jump in MSCI Asia Pacific was probably due to the release of U.S. CPI and retail sales data, with the index based on U.S. dollar, weaker dollar could lead to surge in asset prices
- Major Asian indices have all broken out above recent resistance and heading towards new highs in over two years, the momentum is strong and is backed by improving fundamental elements, such as strong China GDP, industrial and retail figures
IG ASIA (Jingyi Pan)
- The MXAP surge on Friday came after the weaker than expected CPI data suggested U.S inflation remains tame
- Focus on monetary policy had been built up in the past weeks, with the FOMC minutes followed by Fed chair Janet Yellen’s testimony, all placing the emphasis on price inflation performance
- With Yellen emphasizing that rate direction is on price inflation performance, markets are expecting an extension to the more accommodative environment after the inflation data
BDO UNIBANK (Jonathan Ravelas)
- Over a short period, the sentiment has changed from risk aversion to risk on
- Add Yellen’s statement and from equity perspective the outlook is lower interest rates will stay over a longer period of time
- Investors will now have to go back to watching economic data
- “It’s like the bar has reopened and people are coming back again for drinks. There is no threat coming from inflation so the risk of another interest rate hike in the U.S. has diminished significantly.”
- The other side of this is the dollar will remain weak that indicate an appreciation for emerging market currencies that could keep developing equities to range trading.
K2 ASSET MANAGEMENT (James Soutter)
- “The last 10 years have been a bit of a lost decade for Asia so markets have to make new highs, and this is a positive sign. Valuations in Asia are still ok.”
OLD MUTUAL GLOBAL INVESTORS (Joshua Crabb)
- MXAP near 10 year high should not worry investors as stocks are cheap and have underperformed the U.S. a lot.
- Earnings have started to improve