ASIA MORNING: Free, Fair And Reciprocal

  • Phase Two sceptics kick into play, FX markets sedate
  • ASX battles with major resistance
  • Aussie stocks high beta to wildfires

Signed, what now?

It's done. US-China Phase One has been ceremoniously signed in line with what markets had largely already priced in. Though, some key comments have caught the attention of markets. China Vice Premier Liu He noted purchases by China will be based on market conditions. I think this ties in with the general level of scepticism pockets of the market have been expressing over recent months about the economic significance of the substance and timing of Phase One. 

Some texts of the purchasing schedule of US exports to China on top of the 2017 baseline have circulated. And might strike some with bewilderment, raising question marks on how China is going to internalise around US$386bn of US imports split across manufacturing, agriculture, energy and services. For this reason, China's remark around "market conditions" could be telling for Phase One compliance.

Gold holds up at US$1,556. USDJPY nudges along under 110. AUDUSD remains range-bound between 0.688-0.692. NZDUSD also lacks conviction albeit has been down relative to AUD over the past five days. 

Can ASX get there? 

The reaction, therefore, has been somewhat muted with equities lacking conviction to the upside. I observe that there could be follow-through come Asia open with the ASX in a tug of war with 7,000 and multi-year trend resistance. With volumes on the cash index back at normal liquidity levels, and ASX momentum carrying on, it's not to say we can't get a meaningful weekly close above a psychological 7,000. Overnight futures action points the index higher for a 17pt jump at the opening bell.

Impact of Aussie wildfires?

The cost and devastation of the Australian bushfire crisis isn't exactly known and likely won't be known until conditions settle down. Some have thrown around estimates that damages are in the vicinity of A$400m - A$700m, but it very well may exceed even that. One thing for sure is the considerable impact had on Aussie listed stocks faced with operational or infrastructure disruptions, or that see considerable drop in demand.

The below chart looks at the returns of the ASX indexed from the turn of the year against Bega Cheese (BGC), Costa Group (CGC) and Aspen Group (APZ), three listed stocks that have been seriously challenged by the bushfires. The returns of each stock are subdued to varying degrees relative to the ASX. Aspen Group has been worst hit, registering effectively a zero return for 2020, given its ownership of short-stay accommodation in devastated tourism parks, and less diversified nature. 

Source: Eikon