Asia Wrap: Risk Sentiment Bruised But Not Battered

Risk sentiment bruised but not battered

Outside of this morning’s initial risk-off move, the markets have been responding favourably to more constructive geopolitical news flow which has seen the market continue to pare defensive positioning, and a similar paring of risk-off strategies unfolded today despite the weekend escalation in the middle east geopolitical tension. Middle East war premiums have been a tough sell this year, and as we’ve seen from today’s price action, investors continue to think it’s implausible the U.S. will get into a shooting war with Iran and used this opportunity to reduce more defensive strategies, like long Gold positions. While others went on the equity bargain hunt. Keeping in mind that US equity markets correlate favourably with higher oil prices, so trader were in buying the dips in the this morning.

While Oil prices are still the talk of the town, Saudi Arabia scrambles to repair damage to its energy infrastructure inflicted this weekend. So, traders will continue to monitor damage reports which will be critical to gauge the interval of this weighty unscheduled market disruption and consequential duration for higher oil prices.

Oil prices and Asia Focus

Historically price spikes driven by demand have generally been positive for equities in APAC. By contrast, oil price spikes on supply shortages tend to be less embraced.

However, the most favourable investment sensitivity is in Malaysia since they are a consistent net exporter of Oil and gas, running a surplus in trade in these products of 2.7% of GDP in the past year.

China data

China economy slowed further in August with I.P. at +4.4% vs +5.2% consensus and +4.8% in July providing further evidence that the current stimulus is not enough. China still faces significant downward pressure amid trade war uncertainties. However, this week, high-frequency data in China is of the backwards-looking variety suggesting the market may continue to focus on developments of the US-trade negotiations to assess their growth and rates view beyond this quarter.

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