Observing Global Forex Developments

Asia Stocks Shining Their Best Light Since 1998

Some analysts worry China’s reopening euphoria will give way to the harsh reality of a looming global recession. A world-beating rally across Asian markets looks precarious. As bets for a softer Federal Reserve tightening and China’s shift away from COVID-Zero ignited a buying fever, stocks are on track for their best month since 1998. Currencies have advanced the most since 2008. However, Asian equities and currencies are in overbought territory, reversing gains made earlier in the year.

Yet, rather than solid grounds, the stunning reversal has been based on shaky optimism. Cheap bets partially fuel it. Unless the Fed meets expectations for a lower interest rate increase and China continues easing virus controls, the gains may bloom.

In November, the MSCI Asia Pacific Index rose by around 13%, outperforming rivals in the US and Europe. Hong Kong saw some of the largest rises. A gauge of Chinese shares traded in the city entered a technical bull market earlier this week.

Traders Perceive Real as The only Safe Bet in The New Lula Economy in Brazil

Meanwhile, the appeal of a combined trade betting on declines in local stocks is increasing in Brazil due to prospects for additional government spending and higher inflation under a Luiz Inacio Lula da Silva presidency.

Lula has doubled down on his intentions to expand social services and encourage consumption expansion after winning the election on October 30. This disappointed investors who expected a more moderate tone. Swap rates across the curve are high as traders reduce bets on rate cuts in Brazil’s largest economy.

Reports emerged over the past few days indicating that the incoming administration wants to circumvent budget constraints to fulfill Lula’s campaign promises. These have caused Brazilian assets to be highly volatile. Investors have only become more nervous as the official announcement of the proposals has been delayed – which was initially scheduled for last week and might be announced on Wednesday.