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A helping hand over the South China Sea

Trump’s “most important day” in Asia arrives,  “no possibility” King Salman will abdicate, and a record-setting Singles’ Day. Here are some of the things people in markets are talking about.

The Peacemaker President?

U.S. President Donald Trump offered to help diffuse regional tensions ahead of a series of meetings beginning on Monday at which territorial disputes in the South China Sea will be a key agenda item. The president extended his Asian tour by one day to attend the start of the East Asia Summit, which he deemed to be “the most important day of the trip. Trump and U.S. Secretary of State Rex Tillerson will also meet with Philippines President Rodrigo Duterte, whose call for the U.S. leader to tone down his rhetoric on North Korea and seek to build bridges with the rogue regime has largely been heeded during Trump’s time overseas. On Saturday, Trump said it was “certainly a possibility” that he could become friends with Kim Jong Un – shortly after he tweeted about the “short and fat” North Korean leader.

Salman’s Staying

Saudi Arabia’s King Salman has no intention of formally handing over the throne to his son, Crown Prince Mohammed bin Salman, any time soon. The recent detentionof high-profile businessmen and senior princes, as well as current and former government officials  as part of an alleged anti-corruption campaign spurred suspicion that King Salman was smoothing the way for a transfer of power to his son in short order. A Saudi official said “there is no possibility” that the king will abdicate, citing Salman’s “perfect” physical and mental powers. Saudi Arabian credit-default swaps have jumped by the most in almost two years amid the corruption probe as well as heightened tensions with Iran and its proxy militant groups. Saudi Arabia is stepping up security of its oil infrastructure after Bahrain alleged that terrorist activities directed by Iran resulted in a fire at a pipeline connecting the two kingdoms.

Billions of Singles

Saturday was a smashing Singles’ Day success for Alibaba Group Holding Ltd. The internet giant’s sales during the holiday dedicated to China’s unhitched population exceeded $1 billion in the first two minutes of the day en route to a record $25.3 billion, which exceeded analysts’ expectations. The near 40-percent sales growth vindicated the view of GGV Capital managing partner Hans Tung – an early investor in the firm – that Singles’ Day fatigue has not yet set in.

Coming Up…

Indian inflation is the day’s highest-profile release, projected to pick up to 3.45 percent year-on-year in October. That’d be nearly 2 percentage points above its nadir in June, but a move more reflective of a supply shocks than buoyant demand. September’s deceleration in pricing pressures increased expectations that the Reserve Bank of India may be forced to deliver another rate cut before year-end. Japanese producer prices are forecast to accelerate a tick to an annual rate of 3.1 percent year-on-year in October, while we’ll also get the preliminary reading on machine tool orders for that month. Bank of Japan Governor Kuroda speaks in Zurich on Tuesday.

Futures Down

Nikkei 225 and S&P/ASX 200 futures are trading modestly to the downside ahead of the open. The Asian session to kick off the week will be closely watched by traders around the world looking to see if the risk-off sentiment that sparked the first weekly loss for U.S. stocks in more than two months is poised to endure. Political turmoil may also afflict Aussie equities after one of Prime Minister Malcolm Turnbull’s lawmakers resigned amid suspicion he may also hold British citizenship, further reducing the minority government’s hold on power. Meanwhile, the rally in nickel that’s helped propel the Bloomberg Commodity Index up by 10 percent since late June is looking increasingly fragile.

And finally, here’s what David’s interested in this morning

Two weeks ago, I wrote about how it’s almost impossible to identify that moment when healthy exuberance crosses that proverbial line in the sand and evolves into (to borrow a line from Alan Greenspan) irrational exuberance. Howard Marks of Oaktree Capital was bang on point when asked about this on Daybreak Asia. He said the market’s behaving rationally based on risk-free rates at or near zero. That’s the current matrix. In the same way that to someone who’s drunk, inhaling three kebabs is normal. With risk-free rates where they are, even potential returns on my soggy, running socks right after a 10K run will churn out a buy signal when the variables are plugged into the CAPM.

But seriously, the endeavor ahead is not just spotting and but also evaluating the early warning signs as the cost of money grinds higher. By the time multiples adjust lower, it’s almost guaranteed that’ll be a symptom and not the cause. Mark Tinker, Head of AXA Framlington Equities Asia, suggests watching XIV or what he calls the “Greed Index”. It’s an ETF that’s the inverse of the VIX. People who buy are actually short volatility and pushing it down without necessarily knowing it, he says. It’s tripled this year. Have a look when you have time. Might not be the very first place you look to gauge a change in sentiment but remember glitches often take place at some of the farthest boundaries of the matrix.

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