Asia Morning: Familiar Conversations

Risk stable

Overnight, markets have regained composure reversing early Monday weakness driven by nCoV concerns, which granted, continue to cause a stir. Moves, however, have been somewhat selective and emphasise for the time being that Asia region still remains on the edge. Nasdaq futures lead risk appetite, having bounced from lows of 9,330 to now trade at all-time highs yet again.

Elsewhere, S&P 500 teeters on the edge of 3,350, while FX exhibits broad USD weakness and US bond yields are ticking lower. Asian currencies like SGD, THB, MYR and IDR look vulnerable, and have expectedly lagged given the potential economic fallout from the virus is seen to be among the worst in these areas. Though, the sensitivity to risk-on from KRW, TWD and PHP fares much better.

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Strong open for AUS

This should flow through to the opening bell here in Australia, with ASX futures (+44pts at time of writing) pointing ASX cash towards a moderate rally at the open. Markets are also coming into the thick of reporting season, and so, it’d be wise to deposit attention here too as stocks can exhibit more idiosyncratic price action.

A couple to keep ahead of:

Challenger H1 FY20 (CGF).

Investment management company up 9.6% YTD.
Mean H1 EPS (0.280, 6.4% yield*).
Mean H1 Revenue ($418m).
Mean H1 EBIT ($272m).

Transurban Group H1 FY20 (TCL):

Developer, financier and operator of major toll roads networks.
Mean H1 EPS (0.055, 0.95% yield*)
Mean H1 Revenue ($1,758m)
Mean H1 EBITDA ($1,166m)
Mean H1 Dividend (0.31, 1.9% yield**)

Uses closing price as of 10/2/20
Calculated as (H1 FY20 estimate + H2 FY20 estimate)/Close Price
Interim only

Platform or trap-door?

A few currencies on watch which continue to sit at, or near, key support levels.

AUD – has already faded all of yesterday’s strength to 0.67 and pulls back into 0.668. We anxiously watch for any meaningful break below 0.66, having tested this area on multiple occasions in Q3 2019. Though rarely a market mover, NAB Business Conditions (prev. 3) and Confidence (prev. -2) is one to watch today.

EUR – has copped the brunt of broad USD strength in recent times and now closes in on October 2019 lows of 1.0877 (some 35 pips away from spot). An unexpected development in Germany, the stepping down of Annegret Kramp-Karrenbauer (AKK) – Angela Merkel’s successor, won’t help the situation.

Oil dynamics sluggish

Yesterday, I flagged challenging demand dynamics for oil in H1 2020 as a result of lower China GDP growth and the potential subpar return of factory workers to shop floors in China. There was hope that Russia would call an emergency OPEC+ meeting ahead of the scheduled March summit, however, reports now suggest that won’t go ahead. This removes a key catalyst for oil prices to kick higher offer significant lows, and keeps long positioning subdued as seen by a contraction in the ratio of longs/shorts. As a result, USDCAD has ticked higher trading around 1.332 levels.

Bullish set-up for AUDNZD?