Essential Insights

  • Asian markets open with continued weakness for a second consecutive session
  • Oil falls more than 1% on Saudi price cuts , but China imports remain strong
  • Chinese and US equity bourses in the red along with Japan’s Nikkei index

Equities 

The asian trading session failed to recoup losses from last Friday, which saw a broad sell off across the board for equities and commodities such as Crude Oil. It seems rather odd this is happening now when the red flags have been raised for quite some time , but markets are finally realising that high company valuations is unrealistic in an recession environment. Though the question remains, why didn’t this correction take place months ago at the peak of the virus, why now ?. Perhaps we will find the answer to this during the week but speculation say it involves 30-year treasury bonds.

Eurostoxx 50 & the DAX index were up 0.9% with the UK FTSE100 future rising by 1%. Though the picture was much more bleak with UK equity bourses, Emini futures for the S&P 500 fell 0.8% , whilst NASDAQ slipped by 1.3%, though this is likely due to Tesla being excluded from joining the S&P 500 Index (more on this later, watch out for a dedicated article).

“It is not unthinkable that global equities are set to churn in a range for a while as some of the orphan sectors/countries are refranchised while the richly valued sectors pause or unwind. On the balance of probabilities, last week’s correction has further room to go” – Jefferies

Perhaps this is not another case of equities taking a dive and being completed recovered, potentially a much deeper correction – though there has to be a catalyst for this. Forward valuation will not cut it, because if this was the case, equities would have corrected months ago, traders should bear this mind.

OIL 

Crude Oil dropped to $39 a barrel, it’s lowest price since July , following a decision by Saudi Arabia to discount the Oil sold to Asia – a move that raises concerns about tangible demand. If demand is lagging, it makes sense for Saudi Arabia to make the price of its oil cheaper , virus concerns has left Oil demand up in the air once again. However a recent trade report released today showed China imported 47.48 million tonnes of crude in August , whilst this is a slip when looking at June/July import levels it is 12.6% higher than August imports in 2019. So if Chinese imports are strong why are oil prices still under pressure? well because the increased level of crude imports by China can be attributed towards a market share war with Saudi Arabia and Russia, and not indicative of actual demand.

“There is an enormous amount of uncertainty, but we don’t expect any additional serious slowdown in the coming months. Even though (the market is) not expecting real robust growth coming back soon, the view on demand is more stable compared with three months ago,” – Keisuke Sadamori, IEA director

FX 

FX movements have been fairly muted, it is Memorial day in the US and this will result in reduced volumes, which may mean a decline will extend into tomorrows trading session. The DXY rose 0.15% ahead of key data releases such as Initial Jobless claims. Markets however will be focusing on the ECB interest rate decision and statement this week.