ASIA MORNING: Happy Banks Offset By Upset China

*Phase One deal T&Cs (surprise, surprise) keeps equities flat
*Banks buoyed by strong Q4 results foreshadow optimistic reporting season
*US election increasingly draws interest and media attention
*Trump wants to stop media from covering economic indicators in the lead-up

US-China trade in 2020 hits a small snag

While a Phase One deal signing on face value had all the makings of a sugar hit for major equity benchmarks, we find it unsurprising that news quickly followed overnight that pulled equities back into a flat finish. According to a Bloomberg report, the US is set to keep tariffs as is – around US$360bn worth on imports from China – until after the US election which takes place on November 3, giving the US plenty of time to assess China’s compliance with Phase One requirements.
We note that while market expectations weren’t really priced for further tariff reductions, the strong report mediates the near-term mood somewhat. Though, it’s also entirely possible that Trump, given his poor track record of sticking to his word, steps back from the rhetoric between now and November if negotiations continue to pan out better than expected. In the meantime, risk-off hedge USDJPY has edged lower as it continues the battle with 110. USDCHF privy to the news was also high beta against G10 pairs.

Earning beats on day 1 set the tone

JP Morgan (JPM) closed 1.17% higher after Q4 revenues ($29.2bn vs $27.9bn e) and EPS ($2.57 vs $2.36e) beat consensus estimates and the combined FY19 results showed a strong year of growth where “the US Consumer continues to be in a strong position”. Similarly, Citigroup rose to a higher finish after delivering beats across a range of divisions with revenues mainly buoyed by fixed-income trading, $2.9bn vs $1.2bn e.
Both set the tone for an optimistic view of how other financials will go, due to report later tonight. This includes household names in Bank of America (BAC), Bank of New York Mellon (BK) and Goldman Sachs (GS). Outside of financials, Delta (DEL) made waves in the airlines sector with beats across revenues and EPS helping the airlines sector to broader gains.  

Markets continue to assess Sanders and Warren risk

As we inch closer to November, expect markets to become increasingly sensitive to US presidential election risks. Especially the prospect of left-wing Democrats Sanders or Warren claiming office, which very well may be underpriced at the present time. Both are seen as bad for markets and have USD downside to attached to them, though, because it’s still early in the election process, we don’t expect any major USD jitter for now.
The Iowa Caucus coming up on Feb. 3 represents the first of many stops in a 9-month timeline as Democrat voters sift through a group of candidates that, for Iowa anyway, seem to be closer on the leader board than we might think. Sanders gains strong ground in Iowa as shown by latest polling, but tonight’s Iowa democratic debate which fields only six candidates should offer more details.

Final thoughts

Some major news broke this morning that suggested the “Trump administration plans to restrict news media’s ability to prepare embargoed stories on economic indicators in data lock-ups” as early as this week. This proves very interesting given it’s sort of unprecedented to think about what impact on volatility there might be had from having little to no coverage of major economic releases in the lead-up.
Could this cause information asymmetry to widen even further between the public and institutional side of markets, with the latter arguably better judges of how data might fall. Or could it cause a discernible structural shift in how markets trade economic data like NFPs. Who really knows. Only time will tell.