Uncover the Hidden Dynamics of Asia's Market
Japanese National CPI and Prelim PMIs
The Japanese National CPI for October came in mostly in line, with all three figures comfortably above the BOJ target of 2.0%. Meanwhile, Japan's prelim PMIs showed Manufacturing logging its 5th straight contraction while Services returned to expansion after a one-month contraction. The 10-year JGB yield briefly touched 1.10% (the first time since early July) but dipped back 2 bps to 1.08% during the session. This provides valuable insights into the Japanese economic landscape and its implications for global markets.
The Bank of Japan's (BOJ) announcement related to outright bond buying operations in different timeframes was inline with prior purchases. Additionally, the terminal rate seen at 1.00% according to a financial press poll of economists gives an indication of the central bank's stance.
Australia's Prelim Manufacturing and Services
Australia's prelim Nov Manufacturing saw a 10th straight contraction, and Services also dipped into contraction for the first time in 10 months. This indicates a challenging period for the Australian economy and highlights the need for careful monitoring and policy adjustments.
The Australia bond auction saw just 2.04%, 4 bps below the market yield of 2.08% and towards record lows of ~2.00%. The PBOC also set the Yuan stronger by 555 pips over the estimate, while the offshore Yuan held the 7.25 handle. Earlier, a China state newspaper said the Yuan “may gain strength” as the strength of the USD ‘wanes’. These currency movements have significant implications for trade and investment.
China's Economic Indicators and State Policies
The China 10-year bond auction result showed a yield of 2.0400%, 4 bps below the prior yield. The state newspaper's statement about the Yuan's potential strength and the Vice Commerce Min Wang's comment on China's foreign trade maintaining a “stable and sound development trend” provide insights into the Chinese economic outlook and policy directions.
China's Guangzhou city's decision to eliminate the difference between ordinary and non-ordinary housing from Dec 1st is another significant development. The PCA's report on China Nov Preliminary Retail Passenger Vehicle Sales M/M showing a +15.4% increase compared to +7.2% prior also indicates positive consumer sentiment. Moreover, the MOFCOM's move to increase financing support for foreign firms and trade firms is likely to have a positive impact on economic growth.
Adani Group and US Federal Charges
Following group losses of ~20% yesterday on the US Federal charges of bribery against its Founder and Chair, Adani Enterprises dropped -6% with group stocks down a further -3% to -6% in pre-market trading. Adani Green Energy and Adani Energy Solutions also saw a -10% decline. This incident highlights the challenges faced by companies in the face of regulatory actions and market uncertainties.
US Equity Futures and Other Economic Data
US equity FUTs were -0.1% during the Asia session. In North America, various economic indicators showed mixed results. The Initial jobless claims were 213K, the lowest since Apr, while continuing claims were 1.908M, close to a 1-year high. The Nov Philadelphia Fed business outlook was -5.5, lower than the expected +8.0. The Oct existing home sales were 3.96M, in line with expectations. The Oct leading index was -0.4%, slightly lower than the expected -0.3%. These data points provide a snapshot of the US economic health and its potential impact on global markets.
The Weekly EIA Natural Gas inventories showed a -3 BCF reading, the first negative since early Sept, indicating a potential shift in the energy market. Matt Gaetz's withdrawal from consideration as AG is another significant event in the US political and economic landscape.
European Economic Developments
In Europe, the Nov GfK Consumer Confidence in the UK was -18, slightly better than the expected -22. The French-German 10-year yield spread rose to a one-month high amid the French budget saga. The ECB's Patsalides (Cyprus, voter) emphasized the need for a gradual approach to rate cuts. The BOE Dep Gov Ramsden noted that inflation is close to target while service inflation remains quite high. The South Africa central bank (SARB) cut interest rates by 25 bps to 7.75% as expected. These developments have implications for the European economic recovery and monetary policy.
The ECB's Holzmann (Austria) stated that warnings of undershooting 2% aren't warranted and that a December rate cut is the likeliest outcome but not certain. The BOE's Mann (dissenter) advocated for holding rates for longer to evaluate persistence. The Eurozone nov advance consumer confidence was -13.7, lower than the expected -12.4. The Spanish Parliament's approval of a new fiscal package is another important event in the European context.
Levels and Market Movements
As of 00:20 ET, the Nikkei 225 was +1.0%, the ASX 200 was +0.9, the Hang Seng was -1.4%, and the Shanghai Composite was -1.5%. The Kospi was +1.1%. Equity S&P500 Futures were -0.1%, the Nasdaq100 was -0.1%, the Dax was +0.2%, and the FTSE100 was +0.1%. In the currency markets, the EUR was at 1.0465-1.0479, the JPY was at 153.97 -154.59, the AUD was at 0.6488-0.6522, and the NZD was at 0.5829-0.5861. Gold was +0.6% at $2,689/oz, Crude Oil was flat at $70.11/brl, and Copper was -0.7% at $4.0825/lb. These levels and market movements reflect the complex interplay of various factors in the global economy.
Looking ahead, with events such as Fri Nov 22nd (Fri eve UK Retail Sales, DE & US Nov Flash PMIs) on the horizon, the Asia market is set to continue its dynamic journey. Stay tuned for more updates and insights.Central Bank's Response
The central bank of Turkey has been working diligently to handle the counterfeiting problem. It has shared a report and guidance with lenders after examining the fake U.S. banknotes. By doing so, they are alerting the banking sector and providing necessary information to combat this issue. Additionally, they have issued statements emphasizing the importance of coordinated action with relevant judicial authorities.According to a written statement from the Central Bank of the Republic of Türkiye (CBRT), counterfeit banknotes that have been in the news due to the increase in their circulation were sent to the bank by judicial authorities for an expert report. The expert reports on these counterfeit banknotes were then shared with judicial authorities as well as the Banks Association of Türkiye and the Participation Banks Association of Türkiye. This helps in creating a unified front against counterfeiting.
Furthermore, the CBRT has provided necessary guidance to caution against counterfeiting in technological infrastructure. This shows their commitment to staying ahead of the curve and ensuring the security of the financial system.
Impact on Banks and Currency Exchanges
Several banking sources have reported that several foreign exchange offices and banks are no longer accepting some U.S. dollars. This is due to concerns over the circulation of counterfeit currency. Although the exact amount of counterfeit currency in circulation is unclear, the situation has led to temporary disruptions in transactions.Some $50 bills and $100 bills are suspected of being counterfeit and are not currently detected by money-counting machines. This poses a significant challenge as it can lead to incorrect transactions and potential losses for both banks and customers. The Turkish Banking Association (TBB) is taking steps to address this issue by checking and updating money-counting machines and ATMs to halt the further circulation of counterfeit bills.
A source with knowledge of the matter has stated that a planned rapid system-wide update to money-counting machines will make detection possible. This is an important step in ensuring the integrity of the currency and preventing counterfeiting from going undetected.
Investigation and Allegations
Earlier in the day, local media reported that the official investigation by the Istanbul Chief Public Prosecutor’s Office was launched upon the claim that counterfeit dollars printed abroad had been put on the market. The Istanbul Chief Public Prosecutor’s Office Anti-Smuggling, Narcotics and Economic Crimes Investigation Bureau took action following allegations that fake $50 and $100 bills printed abroad were being put into circulation in Istanbul and that some exchange offices in the Grand Bazaar had stopped accepting dollars.Money-counting machines and ATMs with outdated software reportedly failed to detect the counterfeit currency, prompting a temporary suspension of transactions involving $50 and older $100 bills at currency exchange offices. The fake bills have reportedly originated from the Middle East, Asia, and the Balkans. However, a report by the private broadcaster Bloomberg HT suggested that the fake dollar banknotes are being smuggled into Türkiye from the southeastern border, with estimates suggesting that the total amount could exceed $1 billion.
Analyst Insights on the Pound's Performance
James Nelligan, an analyst at JP Morgan, emphasizes that "Sterling is a carry currency." Going forward, he believes that the pound's movements will be primarily driven by its yield advantage or the lack thereof. The pound's yield advantage stems from the Bank of England's gradual approach to interest rate cuts, which has kept UK rates higher than those in other major economies, especially the eurozone. This relative yield gap serves as a key factor in driving demand for the pound in the carry trade, where investors borrow in low-yielding currencies and invest in higher-yielding ones.The Carry Trade and Its Implications
This carry trade strategy has significant implications for the currency markets. As investors seek higher returns, they are drawn to currencies with higher interest rates, such as the pound. The relative stability of the UK's economic conditions and the higher interest rates have made the pound an attractive option for carry trade activities. However, market conditions are constantly evolving, and any changes in interest rates or economic indicators can impact the attractiveness of the carry trade.Moreover, the carry trade is not without risks. Fluctuations in exchange rates and changes in global economic conditions can lead to significant losses for investors. Therefore, careful analysis and risk management are essential when engaging in carry trade activities. Despite these risks, the pound's yield advantage continues to attract investors, and it remains an important factor in shaping the currency's performance.
The Impact of US Market Closure
With US trading hours shortened on Friday due to the Thanksgiving holiday, volatility in the currency markets remained subdued. This allowed the pound to maintain its upward momentum without facing significant challenges from other major currencies. The absence of US market activities also provided a more stable trading environment, enabling investors to focus on the fundamental factors driving the pound's performance.However, the closure of US markets also means that the impact of US economic data and policy decisions on the pound may be delayed. As such, market participants will need to closely monitor upcoming US economic releases and policy announcements to assess the potential impact on the pound's future performance.
Gold's Safe-Haven Appeal in Times of Uncertainty
Gold prices rose on Friday, supported by a dip in the dollar and heightened geopolitical tensions. The latest rally in gold came as tensions flared in the Middle East and Eastern Europe. Israel's military reported airstrikes on a Hezbollah facility in southern Lebanon, targeting a storage site for mid-range rockets. This was followed by accusations of mutual ceasefire violations. Meanwhile, Russia launched its second major assault on Ukraine's energy infrastructure this month, resulting in widespread power cuts across the country.In the face of these escalating geopolitical risks, investors have flocked to gold, viewing it as a safe-haven asset. Brian Lan, managing director at Singapore-based dealer GoldSilver Central, stated that the rising geopolitical tensions are making investors seek the stability offered by gold. A slight weakening of the dollar has also contributed to gold's recent gains, as investors look for alternative investments in times of economic and political uncertainty.
Gold's Long-Term Protective Role
Gold has long been considered a protective investment during times of instability. Its historical role as a store of value and a hedge against inflation makes it an attractive option for investors seeking to safeguard their portfolios. The recent surge in gold prices highlights its continued relevance as a safe-haven asset in today's volatile market environment.However, it is important to note that gold prices are also influenced by various factors, including interest rates, inflation, and global economic conditions. Therefore, investors need to carefully consider these factors when making investment decisions regarding gold.
Wall Street's Bullish Outlook on Gold
Wall Street is becoming increasingly bullish on the trajectory of gold prices. UBS predicts that the commodity's price could touch $2,900 per ounce by the end of 2025. This comes after Goldman Sachs forecasted earlier this week that gold could even hit $3,000 in 2025. The positive outlook for gold is driven by a combination of factors, including geopolitical tensions, inflation concerns, and the potential for further interest rate cuts.Investors are increasingly recognizing the importance of gold as a portfolio diversifier and a hedge against market volatility. The rising demand for gold from institutional and retail investors alike is likely to support its price in the coming years. However, it is important to remember that gold prices are subject to fluctuations, and investors should approach gold investments with a long-term perspective.
Oil Prices and Market Uncertainty
Oil prices were mixed on Friday, with markets reacting to renewed supply risks as Israel and Hezbollah exchanged accusations of ceasefire violations. Brent crude futures rose 0.2%, trading at $72.46 per barrel, while US West Texas Intermediate (WTI) was muted at $68.77 per barrel. Tensions in the Middle East escalated on Thursday, raising concerns about potential disruptions to oil supply.Meanwhile, the delay of an OPEC+ policy meeting further added to market uncertainty. The Organisation of the Petroleum Exporting Countries and its allies postponed their meeting to 5 December to avoid a clash with other events. The market is awaiting key decisions from this meeting, which is expected to extend the group's current production cuts. However, analysts remain cautious, as they anticipate that the production cuts may not be sufficient to offset the anticipated supply glut in 2025.
Market Sentiment and OPEC+'s Role
BMI, a division of Fitch Solutions, revised its 2025 price forecast for Brent crude down to $76 per barrel, citing a "bearish fundamental outlook" and ongoing weakness in oil market sentiment. The analysts noted that while OPEC+ is likely to maintain its production cuts into the new year, these cuts may not be enough to address the expected supply surplus.Market sentiment plays a crucial role in determining oil prices. Any geopolitical tensions or supply disruptions can lead to increased volatility in the oil market. OPEC+'s decisions regarding production cuts and supply management will continue to have a significant impact on oil prices in the coming months. Investors will need to closely monitor these developments to assess the potential risks and opportunities in the oil market.