This is not the most exciting day on the financial markets, a situation that might come as a surprise given that geopolitical risks are not diminishing. The Chinese fiscal stimulus package, instead of being a strong display of fireworks, was rather received by investors as a dud. The dollar continues to dominate in FX, capital is flowing away from safe havens, but today’s movements do not necessarily mean a broad change to a risk-on stance.
Chinese Dud
The markets had received the stimulus packages endorsed by the People’s Bank of China very positively, so similar moves were expected from the government and its fiscal package. Hence, investors listened carefully to Saturday’s press conference by the Chinese Minister of Finance, Lan Fo’an. Unfortunately, the plans again turned out to be very vague, and the whole operation (which could amount to up to 2.3 trillion yuan, approx. half that amount in zlotys) is to be conducted in stages (which was presented as the argument for the lack of specifics). The presentation of the fiscal package was not warmly received by global investors, which was reflected on the stock exchange in Hong Kong (-0.75%), but Shanghai (more closely connected to Chinese capital) rose by 2%. Today’s trade balance data for September, which was worse than previous and weaker than forecast, did not help Chinese assets. Annual export grew only by 2.4% (in August 8.7%, expected 6%), while import only by 0.3% (before 0.5%, expected 0.9%). It is clear that China has a long way to go to emerge from the slump, which unquestionably weighs on the global economy.
Quieter Over Tensions
It may appear that financial markets are quite immune to geopolitical risks in recent months. True, Israel has not yet decided on a military response to Iran’s strike, but in the meantime, US troops are noticeably increasing their presence in the Jewish state, which can be viewed as preparation for further escalation. The worsening situation of Ukraine on the defensive war front with Russia can lead to turning points. On one hand the cessation of war actions and the prospect of the reconstruction of our neighbor could financially support our part of Europe, on the other hand, it is hard to expect the satiation of the appetites of the Russian aggressor, who in the meantime has switched its economy to war mode. Finally, tensions are reviving in East Asia, which although far off from our perspective, have global consequences. Interestingly, North Korea’s increasingly aggressive rhetoric and actions (putting part of their artillery troops on alert) against its southern neighbor (South Koreans warn of potential bridge bombings that connect both states), coincides with large-scale Chinese exercises around Taiwan.
This all happens in one of the hottest periods for Americans, that is, in the final stretch of the presidential elections. In this case, I recommend restraint, as in many places you can read about Trump’s increasing lead, which is a far-reaching abuse. In this election, one thing is certain: until the very end it will not be known who will win. Such uncertainty is of course another risk factor that should affect the markets in the coming weeks, unless investors look elsewhere in anticipation of vote and electorate counts.
Risk On Appearance?
On the currency market, large changes are not visible today, but it is definitely worth paying attention to two things. The dollar, although still with some shyness, is seriously considering a second attack on 1.09 on EUR/USD. If it manages to push the eurodollar rate deeper than the defensive zone located just below this psychological level, it will be necessary to seriously consider a move one cent lower (to $1.077), from where the euro rally began in the middle of the holidays. The second element of Monday’s trade is the weakness of the so-called safe havens. Among the poorly performing currencies today are the JPY and the CHF. This could suggest an improvement in market sentiment, but it is hard to see a clear transfer of risk-on to capital markets (although Europe is green today), let alone FX. Therefore, I would rather speak of portfolio shifts by investors (in favor of USD, including the purchase of American bonds), rather than a clear change in attitude towards more risky assets. The Polish zloty is lethargic today along with almost the entire basket of EM currencies. The exception is the CHF/PLN pair, which in line with the broad market is pushing the franc rate to 4.55 zlotys. The euro rate is balancing at 4.29 zlotys, the dollar rate is above 3.93 zlotys, and the pound rate is close to 5.12 zlotys.
Author: Adam Fuchs, Currency Analyst at Walutomat.pl
Source: https://managerplus.pl/tyle-ryzyk-ktore-mozna-ignorowac-78049
