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Asia Update: Many Moving Parts

E-minis regained some of their overnight losses, up 45 points from the open at 2988. The Nikkei followed suit up 0.71%, the Hang Seng flat on the day, and the ASX down 1.64%.

There has been a net $240.20 mn worth of foreign inflows into Korean equities today. If the positive print holds, that would be the first inflow daily since Feb. 21. The inflow chimes with USD/KRW downside on the day. This a massively positive sign for Asian equity market risk

China’s Securities Journal (CSJ) front-page editorial says that the PBoC may cut policy rates in March and infuse liquidity to ward off the economic implications of the coronavirus. In light of the 25bp RBA cut and the Fed’s 50bp emergency cut, interest rate cuts have become a universal choice on coronavirus concerns. While the coronavirus outbreak in China appears to be past its worst, the economic fallout is only becoming apparent. Growth and stability are undoubtedly Beijing’s top priority. Another round of interest rate cut could meet the current domestic monetary policy needs to support the real economy and reduce financing costs

The FOMC’s inter-meeting 50bp rate cut is driving a global bond market rally amid broad-based USD weakness and has reversed the S&P 500 death spiral for now.

Not quite the knock out punch after the Sanders’s strong showing in California but a decisive Biden victory, none the less. The market is reacting favorably as this outcome would be the most palatable for risk sentiment, given Sanders’ more radical left-wing policy platform.

Chair Powell has effectively shifted the FOMC goal posts and has left the door wide open for more rate cuts without explicitly committing to more engagement.

My working framework is the same as its been since the Feds started easing in early 2019. To be clear, the fear of slower growth (or unexpected shocks like Covid 19) will explode equity market volatility higher, but easier financial conditions will counteract much of the increase. Hence the reason why I never think its a good idea to take on the Fed when they pivot to an easy money policy with the fear of secondary outbreaks still lingering, that might a long way off despite the Asia contagion rates stabilizing.

Asia Update: Many Moving Parts

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