Most Asian stocks are seeing out the week on a positive note, after the S&P 500 notched a new record high. Despite the recent US and Iran airstrikes, risk appetite has been largely restored, with USDJPY advancing some 1.3 percent so far this week, while Gold has erased all of its gains this week to trade below the psychological $1550 level.
Investors have been emboldened by signs that both the US and Iran are backing away from the brink of an all-out war. The flare-up in the Middle East was the latest reminder for investors to remain vigilant over geopolitical risks. It remains to be seen whether this is merely a lull in what could be a protracted action-reaction cycle between the US and Iran; such a risk may have to be factored into investors’ respective asset allocation strategies.
Still, the diminished risks of a near-term escalation in the US-Iran conflict mean that market participants can refocus their attentions on the US-China “phase one” trade deal which is set to be signed in the week ahead. The key detail would be the timing of the expected rollback in tariffs. The lowering of these barriers to trade, sooner rather than later, should give the global economy more time to recover and provide cause for investors to add exposure to riskier assets, including those in emerging markets.
Positive surprise in US jobs data to spur Dollar on
The Dollar index (DXY) has now climbed one percent so far in 2020, trading back above 97.4 in the lead up to the December non-farm payrolls (NFP) release. Markets are currently pricing in an NFP print of 160,000, and such a figure would underscore the job market’s resilience as US consumers are being relied on to maintain the growth momentum in the world’s largest economy.
Positive surprises in the headline NFP, wage growth, or average hourly readings could see the Dollar index closing in on its 200-day moving average of 97.706 and stall its downward trend. However, considering that the DXY has been posting lower lows since October, the US Dollar is expected to moderate further, as long as risk-on sentiment remains uninterrupted and the Fed stands pat on US interest rates.