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Asia awaits geopolitical developments

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Asian markets are cautiously higher this morning as the weekend produced lots of noise, but little of real actionable substance. US markets continue to price in an almost certain Ukraine-Russia peace agreement and seem to be quickly putting an expectedly hawkish FOMC behind them. Both could yet come back to bite, but until they do, or don’t, the street seems content to quietly price in “peak-Ukraine.”.

Is Ukraine-Russia deal near?

Notably, the Turkish foreign minister said in a weekend interview that Ukraine and Russia were nearing an agreement on “critical issues’ and that he was hopeful of a ceasefire. That has had little to no impact on markets in Asia which are probably more focused on a Reuters report that Europe is mulling an oil embargo on Russian oil. I’m not sure how that would work, to be honest. Oil is one asset class that is moving today because of that in energy-hungry Asia. Oil has climbed over 2.0% with as the IEA reports that OPEC+ is falling further behind pre-agreed production targets and a Yemeni Houthi missile attack on a Saudi Arabia energy facility in the south of the country.

China has probably disappointed markets slightly this morning as well, leaving both its one and five-year Loan Prime Rates unchanged, and only adding a modest amount to the market via the repo today. The talks between President Xi and Biden last week were notable for the fact that they didn’t vehemently disagree, not for any concrete progress on a multitude of issues. Talking up markets has a declining marginal utility, and unless we see the colour of their money, so to speak, we have probably seen the best of the breath-taking recovering in China equity markets. On the covid front, markets will take some heart that Shenzhen’s lockdown has ended, although that risk persists elsewhere in the country.

New Zealand released much better than expected Balance of Trade data for February this morning, boosted by a jump in exports, while imports remained flat on January. There has been negligible impact on either local stock markets or the currency with markets focused on the cost of living and the box canyon the RBNZ has led itself and the country into.

That is pretty much the whole Asia-Pacific calendar out of the way today, with volatility slightly muted by a Japan holiday. The rest of the week features no tier-1 data from Asia at all, with the global calendar noisy with tier-2 data, but featuring only UK Inflation, German Manufacturing PMI and US Durable Goods among the heavyweights. We have an all-you-can-eat buffet of Fed and ECB speakers this week which could be good for some intra-day volatility. Otherwise, we are back to Ukraine-watching with China’s stimulus and covid developments providing entertainment during intermissions. Equity and currency markets are pricing in positive outcomes, energy markets are not. It will be interesting to see who is right.

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