The positive momentum seen in European and U.S. stocks on Monday was unable to translate into broader gains in Asian equities. While Japan’s Nikkei was up more than 1% in afternoon trading, the South Korean Kospi index traded slightly lower, with Hong Kong’s Hang Seng flirting with bear market territory.
Despite a slight return in appetite for equities, the risks have not changed. Emerging markets are still vulnerable to further shocks, and the U.S.-China trade dispute is likely to escalate further in the coming days. This makes it difficult for investors to make up their minds on whether to begin purchasing oversold potential stocks or wait longer for clarity on how U.S.-China relations resolve.
Sterling was under the spotlight in currency markets. GBPUSD shot 100 pips higher after the EU’s chief Brexit negotiator Michel Barnier said a Brexit deal could be struck in six to eight weeks. With many short positions being accumulated over the past several weeks, traders should expect a further rally in the Pound if more progress is achieved. However, to see a meaningful rally, UK MPs need to come together, but so far deep divisions - persist.
The Australian dollar recovered slightly in late Asia trade after touching its lowest level since February 2016. While there was no significant economic data released, the AUD continued to behave as a barometer of trade risk. Traders who want to bet on AUD need to keep a close eye on trade developments.
Oil prices were slightly higher in early trade as Washington continued to put pressure on countries exporting oil from Iran. While South Korea was the first Iranian customer to cut its crude imports to zero, Japan and India are signaling to move in the same direction. Whether Russia and Saudi Arabia will fill the expected gap remains to be seen until November. Geopolitical risks in the Middle East region will escalate if more pressure is put on Iran, and that’s likely to keep prices well supported in the short run.
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