ASIA MORNING: China Holidays Make For A Tricky Week

Markets were moderately risk-off on Friday - USDJPY down, equities down and bonds up - after headlines emerged that the US might consider imposing limits around US capital flows to Chinese companies. These limits, according to Bloomberg reports, could take the form of "delisting Chinese companies from US stock exchanges" or "limiting [US investor] exposure to the Chinese market through government pension funds". It remains unclear whether these harsh securities laws, currently green lit by Trump for debate among the Administration, can get off the ground. Though, to effectively occlude China's access to liquidity from US financial markets potentially serves as the most extreme retaliation to date.
 

With China walking into National Day holidays on Oct-1, US-China trade relations have all of a sudden just got edgy again - especially when it seemed that stances were softening on both sides with the US delaying October tariffs and China issuing waivers for US soybeans. It was only last week that China's top diplomat, Wang Yi, erred on the side of more positive language when urging both sides to "take more enthusiastic measures" and Larry Kudlow, White House economic advisor, suggested that "mood music, if you will, [was] very positive going into [October] negotiations". Trump made clear at the UN Forum that he would not accept a bad deal in any case. 

Note that as China takes leaves, Asia session sees less market liquidity and is perhaps more vulnerable to US-China headlines. USDCNH had a large intraday move on the news, +0.5%, but has since opened lower Monday morning. CSI50, also lower -1.7%, sees downside support at 13,370 (Aug-30 low) and 13,270 (Aug-29 low). USDJPY looks to firm below 108 with bearish bias retained. 
 

To add to the China complex, two important data points are out today that give markets a further look into the state of China's manufacturing landscape. The official China Manufacturing PMI prints at 11.00am AEST while the similar Markit's Caixin Manufacturing PMI follows thereafter at 11.45am AEST. 


China Mfg PMI. Source: Forex Factory

The China Mfg PMI is forecast at 49.6, largely around the mark of the previous month's August print at 49.5. If China Mfg PMI prints below 50, it would see manufacturing confidence contract for the fifth month in a row, and in also, 9 out of the last 12 months. The Caixin Mfg PMI, forecast at 50.2 - an expansionary print, tends to generally beat the more pessimistic official PMI month to month. Though, more broadly, it also exhibits a weakish manufacturing landscape over the prior year. Both prints come off the back of the PBOC's recent announcement to keep monetary policy prudent, "neither too tight or too loose", while ensuring ample liquidity and a stable currency that supports China's slowing economy in the face of further trade disagreements.

A consensus beat should help to support AUDUSD, NZDUSD but also put bearish pressure on USDCNH. While a decent miss should look to carry Friday's heavy momentum across Asia equities. ASX 200 Futures see support around Sep-28 and Friday lows (6,678-6,681), with further downside support around 6,665-69.
 

Following last week's RBNZ hold that had November guidance open to interpretation, markets begin this week taking stock of ANZ's NZ Business Confidence survey due at 10.00am AEST. For housekeeping purposes, a quick reminder that NZ underwent a daylight savings time shift overnight with clocks moving forward by 1 hour. 

The survey, which captures the aggregated 12m outlook of hundreds of businesses, has steadly declined over the past two years with the prior monthly print at -52.3. Having been flagged multiple times in recent releases, RBNZ continues to demonstrate concern for the low inflation and growth environment affronting the domestic NZ economy. Should we see another negative print, worse than -52.3, it continues to paint a picture of broad deterioration in NZ domestic outcomes supporting a more dovish outlook for RBNZ November guidance. NZDUSD to edge lower on weak print offset by tighter Monday liquidity.