Spot values at a glance:
Benchmarks fell in Japan, fluctuated in South Korea and Singapore, and ticked higher in China, Taiwan and Hong Kong. Shares climbed from intraday lows after a statement saying Chinese Vice Premier Liu He discussed the timetable for trade talks with US Treasury Secretary Steven Mnuchin by phone. The pound stayed lower after a slump in the wake of UK Prime Minister Theresa May delaying a critical vote on Brexit.
May Defers Brexit Vote:
UK Prime Minister Theresa May is calling off a crucial vote in Parliament on whether to approve her Brexit deal and will head back to Brussels to seek a better offer from the European Union.
May told her Cabinet she will travel to Brussels for talks with EU leaders on Thursday and ask for better terms on the most controversial part of the withdrawal agreement, the plan for the Irish border. She spoke to leaders by phone at the weekend, though the bloc has made clear it won’t re-open negotiations. The vote in the House of Commons was due to be held on Tuesday evening but is now set to be rescheduled, according to people familiar with the situation.
May’s plan to delay the vote throws the Brexit process into further turmoil. She has promised to give the House of Commons a binding say on whether or not to ratify the UK’s withdrawal agreement with the EU before the country leaves the bloc on March 29. It’s now unclear when that vote will happen, though some expect it won’t be called until January.
The stakes for May are high. If Parliament refuses to endorse the withdrawal agreement, the UK will be on course to leave the EU without a deal, unleashing political and economic chaos. May herself could be forced from office and the UK might need a fresh election or referendum to resolve the crisis.
China, US Officials Engage on Trade Over Phone:
China’s Vice Premier Liu He, US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer spoke by phone Tuesday morning Beijing time, according to a statement from China’s Ministry of Commerce. The 2 sides exchanged views on the timetable and road map of future trade talks, the ministry said, without providing further details.
S&P 500 E-Mini futures pared losses on news of the phone call and China stocks turned positive. The Shanghai Composite Index rose 0.4% before midday.
China Government Summons US Ambassador over Huawei Arrest:
China’s Vice Foreign Minister Le Yucheng has summoned the US Ambassador to China, Terry Branstad, in a protest over the arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou, and said it will take “further action” if needed. Meng was arrested in Vancouver on Dec. 1 on the orders of US authorities for allegedly violating American sanctions on selling technology to Iran. Canada’s ambassador to China was summoned to the ministry on Saturday.
The minister said US actions have violated the “legitimate rights and interests of Chinese citizens and are extremely bad in nature,” according to a posting on the ministry website. “China will take further action based on the US actions.”
The move comes after a week in which both China and the US seemed to struggle with how to react to an arrest with potentially broad reverberations. The 2 nations are, at the same time, trying to ratchet back a damaging trade dispute.
Meng’s arrest, on allegations that she committed fraud to sidestep sanctions against Iran, has become a flash-point in ties between the US and China that’s rattled investors and sent stock markets tumbling. The US on Friday began a case against the Chinese telecoms giant in a Vancouver courtroom, alleging that Meng had hidden ties between Huawei and a company called Skycom that did business in Iran, said a lawyer representing Canada during the court hearing.
Hedge Funds not Dumping Stock Fast Enough:
Hedge funds that had stocked up on American equities are still sitting on substantial inventory, according to Sundial Capital Research Inc. While exposure to the S&P 500 Index among long-short equity funds has come down significantly from the record high of early October, it’s still well above levels that marked other market lows over the past decade, Sundial President Jason Goepfert wrote in a note to clients last Friday.
“Hedge funds are fleeing stocks, but not fast enough,” the note wrote. “Their returns are still showing consistently positive correlations to movements in the S&P 500, suggesting they haven’t reduced their exposure much despite the volatility.”
Gross leverage, a measure of risk appetite, had rebounded by the end of last month from a one-year low, client data compiled by Goldman Sachs showed. JPMorgan Chase & Co.’s hedge-fund clients had been raising their equity exposure at one of the fastest rates this year.
Hedge fund exposure to the S&P 500, as judged by the portion of their returns attributable to the benchmark, has been dropping from the record high reached in September, according to data compiled by Bloomberg dating back almost two decades. Even so, the measure, known as beta, still sits about three basis points above its 5-year average.
Singapore Property Market Expected to Stall in 2019:
Home prices that are forecast to climb as much as 10% this year could remain flat in 2019 and may decline as much as 3%, estimates from property brokers compiled by Bloomberg News show. Home sales that lagged behind 2017 levels this year may once again be below that mark in 2019, according to forecasts.
The pace of residential property price increases is slowing after the government added measures to cool the market in July. Those curbs were prompted after prices rose about 7% in the first 6 months of the year, fueled by aggressive land bids from developers and en-bloc or redevelopment transactions. Additional guidelines that limit the number of “shoe-box sized” apartments developers can build, plus anti-money laundering safeguards that restrict builders, are further constrictions.
The government said earlier this month it also plans to slow its release of land sales for residential use in the first half of 2019, citing a spike in supply and a cooling in demand. The MAS said in its annual financial stability review in November that sharp property-price increases, if left unchecked, could have run ahead of economic fundamentals and raised the risk of a destabilizing correction later.
RBI Governor Patel Unexpectedly Quits:
Urjit Patel’s shock exit as governor of the Reserve Bank of India dealt investors another bout of monetary policy uncertainty when they were already bracing for an electoral test of Prime Minister Narendra Modi.
Patel, who was 9 months from the end of his 3-year term as governor, roiled financial markets and surprised the government by quitting on Monday, citing “personal reasons.” He did so ahead of a board meeting on Friday, at which government representatives are expected to push the RBI to do more to ease a cash crunch and hand over more of its excess capital. State election results due Tuesday were already adding to investors’ nervousness before a national election next year.
USDSGD gained to a 1-week high, adding upon its recent climb above the 1.3700 handle. The pair has recovered by as much as 1% since last week, amid increased demand for SGD as a safe haven proxy as geopolitical tensions between US and China heightened. USDSGD has largely maintained within the 1.3600-1.3875 range over the past 6 months. A breach below the 1.3600 support will likely result in an accelerated selloff towards the 200-day moving average of 1.3533.
AUDUSD continues to languish near its 0.7200 handle, following its big decline last week. A bearish bias remains following disappointing Aussie economic data earlier and a stronger USD Tuesday. The FX pair is likely to remain pressured with US-China tensions rising again.
From a technical perspective, the AUDUSD’s shorter-term trend remains to the upside, having broken out of its 2018 downtrend channel last month. The important handle of 0.7200 needs to hold; a decline back below it would mean more downside to follow.
USDCAD is threatening to breakout of its key resistance level at 1.3386, following overnight USD strength and as crude oil futures continue to languish just above the $50/bbl mark. A convincing break is likely to lead to a rise higher to 1.3600 over the near term.
USDCNH declined from a 1-week high earlier following reports that Chinese Vice Premier Liu spoke with US Treasury Secretary Mnuchin and Trade Representative Lighthizer this morning, spurring hopes of a trade talk. The FX pair’s recent gain looks to be capped by its 50-day moving average at 6.9281; indicating a shift from, or at least a slowdown in, its upward momentum since June this year.
USDJPY’s 2018 uptrend seems to be tapering out; the pair has failed to hold above the 114 handle each time it was tested since October. A decline below 112.31, which could happen should investors flock to the yen as a safe haven asset, will confirm the breakdown of the trendline. For the time being, yen bears are safe following USDJPY’s rebound off the support level yesterday.
GBPUSD fell more than 1% percent, taking it to the lowest since April 2017, after UK Prime Minister May canceled Tuesday’s planned vote on the Brexit divorce agreement in Parliament. Having breached below its key support at 1.2662 and tested the next handle at 1.2500 with such pace, GBPUSD looks likely to decline further with 1.2351 the next likely support target.