Seeing the positives in fog of uncertainty

Famous last words, but an air of resilience is enveloping world markets.

Fears of a global trade war are rife, shares in some of the US ‘Big Tech’ firms are slumping, safe-haven gold has climbed to another all-time high and the Japanese yen is marching higher. Yet risk assets refuse to lie down.

This resilience – or ‘bouncebackability’ – can partly be explained by ample market liquidity, and lower dollar and US Treasury yields. It’s a combination that loosens US and global financial conditions and spurs risk-taking activity across markets.

There’s a danger, however, that investors’ benign view of falling US bond yields suddenly flips, and they see it has a worrying reflection of deteriorating growth or a weakening labor market. Or both.

If that happens, the air of resilience could quickly become an air of despondency. US labor market data on Friday, or an unexpected announcement from US President Donald Trump on tariffs may provide the trigger, but until then, investors’ glass seems to be half full.

Shares in Google’s parent company Alphabet fell 7% on Wednesday – their worst day in a year – and AMD shares tumbled 6%, yet the Nasdaq recovered opening losses to end the day slightly higher. The ‘FAANG’ index of major tech shares closed in the green to end near its recent all-time high.

Attention in Asia remains fixed on China and its next response to Trump’s 10% tariffs on Chinese imports, after it formally launched a dispute at the World Trade Organization. Chinese markets were relatively calm on Wednesday after the Lunar New Year holiday, but the yuan is under pressure.

The spread between the central bank’s daily dollar/yuan fixing and the spot market rate popped back up, and a further widening of only 4 basis points would take it back to recent historic highs just above 14 bps.

Elsewhere in currencies, the yen rallied more than 1% on Wednesday to an eight-week high against the dollar after strong national wage figures prompted investors to price in tighter Bank of Japan monetary policy.

That move could accelerate if BOJ board member Naoki Tamura, who has called for raising short-term rates at least to 1.0%, delivers customary hawkish remarks in a speech and news conference on Thursday.

Japan’s earnings season rolls on and among the companies reporting on Thursday are Mitsubishi, Nikon and Nippon Steel. Auto shares could be sensitive to further fallout from the news that the proposed Nissan-Honda merger may not go through.

Here are key developments that could provide more direction to Asian markets on Thursday:

– Australia trade (December)

– Thailand inflation (January)

– South Korea current account (December)

(By Jamie McGeever)