It has been a night of high drama so far, with exit polls suggesting that Boris Johnson's Conservatives are on course to vanquish Labour and achieve an 86 seat majority in yesterday's UK election. Sterling has, unsurprisingly, rocketed higher, higher by over two per cent at 1.3460 in early trading.
Not to be outdone, ever; various tier-1 media outlets are reporting that US President Trump has signed off on the detail of an interim trade deal with China. It will avert the imposition of another $160 million of tariffs on Chinese imports due to take effect this Sunday.
If this was not enough, it appears that the leaders of both Houses on Capitol Hill have reached an agreement on government funding, to avert a shutdown that would have taken effect on December the 20th. Something I will admit, I had forgotten entirely about amongst the other noise in the global macro world.
The global recovery FOMO trade of the last two months got a turbo-charged boost naturally. Stock markets leapt to record highs on Wall Street, emerging market and China-centric currencies have surged, as has oil. In fact, you could have bought almost anything in the last eight hours, and it would be higher now. A trend I fully expect to continue in Asia today. I am quietly confident that even the latte I ordered 10 minutes ago, will be more valuable by the time it is delivered.
Global markets deserve to bask in their glory of victory today, after what has been an arduous few months of wait and see in an industry not renowned for its patience. The author included. I would be remiss, though if I did not point out the following. The exit polls in the UK appear to have run rough-shod over the polls leading up to the UK election. Either Boris' "Love Actually" election video did the trick at the last moment, or we could be in for a few surprises as the votes from the UK stream in this morning.
Secondly, it is essential to note that the media has only been "briefed" on the interim US-China trade deal. After such an interminable wait and having being led to water before, I would like to see something official in writing officially. Further to that point, although the in-principle agreement may have been agreed, the legally binding text has yet to be drawn up. With trade agreements between nations, or anything involving a document really; my heart sinks a little when lawyers are involved.
Thirdly, today is Friday the 13th, a black Friday. For those of you not superstitious, it was also a teen-slasher movie that spawned several ever more improbable sequels. Amidst the glow of the unbearable light of Boris, and the triumph of Trump, Jason Voorhees could yet again reappear in financial markets, looking to increase his body count.
Difficult conversations lie ahead of the UK, Europe, the US and China on free trade in 2020. That will be the story for another day, in any case.
Equities
An early Trump-tweet that a trade deal was close had North American and European stock markets rallying, even before the interim trade agreement story broke. The S&P 500 rose 0.86%, the Nasdaq 0.73% and the Dow Jones 0.79%, pushing all three to record highs.
Asia hasn't hesitated in following Wall Street's lead; the Nikkei 225 has rocketed higher by 2.30%, the South Korean Kospi by 1.35% and the Singapore Straits times by 0.76%. Down under, the ASX 200 has risen by 0.45% with the NZX actually falling by 0.40% today. The antipodean markets are no doubt pricing in the effects of both the AUD and NZD rallying sharply overnight.
With the China Mainland and Hong Kong due to open shortly, we would expect both to perform strongly, following their regional peers.
Currencies
All eyes were on the British Pound overnight, which has now climbed 2.40% as the UK Conservatives head for what appears to be a landslide victory. With election results streaming in over the course of the Asia trading session, a divergence from the exit polls could still see plenty of volatility ahead for GBP. Resistance, previously at 1.3400, now becomes support, with the next upside technical target at 1.3600. The later is achievable should polling run to plan.
An apparent interim trade deal saw a mass rotation out of the US dollar overnight led by the CNH and other emerging market currencies. The USD/CNH collapsed back below the pivotal 7.0000 level to 6.9460 as investors piled into the China recovery trade. Other markets with high beta to China also saw strong rallies. The AUD rallied over 0.80% so far, to 0.6940 this morning, with the NZD nearly 0.50% higher to 0.6615. The NZD, in particular, has quietly rallied almost 4.0% this month. That partially explains the underperformance of its stock market as the good news on trade rolled in.
We would expect the dollar to be on the back foot against most regional currencies today, as the trade deal gives currency markets the green light to awaken from their long slumber. With regional Asia's high exposure to world trade, overnight developments should be strongly positive for Asian currencies in the near-term.
Oil
Oil rose earlier in the New York session after President Trump tweeted that an interim deal was near. Both Brent crude and WTI finished higher but only modestly so in the context of moves in other markets. That could be because much good news on OPEC+ and trade, was already baked into oil prices.
Brent crude rose 0.80% to $64.30 a barrel having failed ahead of %65.00 earlier in the session. WTI too attempted to rally through $60.000 a barrel but failed, still finishing higher by 0.70% at $59.50 a barrel.
Oil is unchanged in Asia this morning with participants unconcerned that neither contract could break higher into new ranges overnight. The price action could be described as "bullishly disappointing" from a technical perspective. However, both Brent and WTI are consolidating at the top of their recent ranges, potentially building momentum for a catch-up move higher with other risk assets.
Gold
The avalanche of positive global macro news was always going to see Gold coming second. Having tested $1480.00 an ounce, the trade headlines torpedoed the rally in double-quick time. Gold gave back all of its gains and sank further to finish lower by 0.33% at $1469.90 an ounce.
It may not be all bad news, however. Gold has quietly over the last month carved out a series of higher daily lows which today, come in at $1465.00 an ounce. From a technical perspective, a close above this level today would mean gold has taken an 8-count overnight but is still on its feet. That said, resistance in the $1480.00/$1485.00 regions remains formidable.
Asia tested lower in early trade to $1466.00, but gold has recovered back to $1488.50 an ounce. The balance of probabilities suggests that gold will not go the full 12 rounds today, given overnight events. But even though gold's knees are wobbling, it shouldn't be counted out just yet.