Asian stocks get off to a nervous start to the week

Monday, January 11, 2016

Another rocky start for Asian equity markets with mainland Chinese equity indices closing 5% lower during overnight trading as the nervous trading conditions and risk off approach by investors showed no signs of letting up. Market participants are increasingly looking towards policymakers in Beijing as their confidence in China’s financial market stability continues to fuel the market sell-off. Data released over the weekend saw China’s consumer price index rise 1.6% y/y in December, building on the 1.5% y/y increase the previous month, however, factory gate prices faced substantial headwinds with PPI declining -5.9% y/y in December, slightly more than the -5.8% decline expected by market participants.  

Despite the overall risk off mood permeating through Asian markets the offshore yuan exchange rate offered further indication of stability after the PBOC kept the daily fixing for the currency firm for a second straight session. CNH traded briefly above 6.7070 against the USD early on in the session before strengthening towards 6.6525 as investors were assured by the central bank’s intervention and markets calmed somewhat. Still, the offshore yuan has lost 1.29% against the US dollar so far this year, having traded briefly towards a multi-year low last week and the PBOC are facing an uphill struggle to maintain order and keep a lid on volatility if they wish to calm equity markets.

The risk off appetite spurred demand for gold as the safe haven asset remained well supported around $1,105/oz early on today. Attempts had been made to rally back towards $1,110/oz during Asian trading hours but near term resistance at the 100 day moving average presents significant headwinds to further upside potential. Downside risks remain and given the intraday declines back towards $1,192/oz on Friday as equity markets rebounded at the end of the week we could see some choppy trading in the precious metal over the coming week.  

Chinese mainland indices revisit September lows

SHSZ300 Index Shanghai Shenzhen 2016 01 11 08 30 21

CNH stabilises after a choppy start

CNH Curncy Offshore Deliverable 2016 01 11 07 56 12

Gold holds onto near term support

XAU Curncy Gold Spot Oz D 2016 01 11 08 29 40

Events for today

JP Market Holiday 

0001

CN

Dec

CPI (09/01/16)

1500

US

Dec

Labour Market Conditions

2330

JP

Nov

Trade Balance

Topics: Equities, Gold, PBOC, CNH
More from: Kash Kamal