Market Wrap – Investors on edge

Stock markets were very subdued during the Asian session and across major FX with traders mainly content to await the inflation data due during the US time zone later.

On the news front, US President Biden meeting with Congressional leaders for debt ceiling negotiations. Statements at the conclusion of the meeting from participants, along with other reports, indicated that little progress towards resolution was made.

The basic takeaway for the market is that we are still in wait and see mode and that US Congress will continue working and have another meeting of the leaders was set for Friday.

Data flow was light in Asia. However, the S&P Global/JP Morgan’s global PMI hit a 16-month high despite “the three largest national economies covered (the US, China and Japan) all performed below the global average”.

The USDHKD pair has hit a 3-month low circa 7.832 during the Asian session. The Hong Kong overnight interbank offered rate jumps 92 bps to 4.4381%, highest since late 2019.

Also, the One-week HIBOR up 48 bps to 4.10952%, highest since December 2022. It was only last week that the Hong Kong Monetary Authority was intervening to support the HKD.

The HKMA have held the HKD in its desired trading band pegged against the USD for decades, so this story was really about US dollar volatility. Official rates set by the HKMA in HK are bound to US official rates, inextricably linked to the pegging of the currency to the USD.

In other news worldwide Zimbabwe has launched a gold-backed digital currency and will be used as legal tender alongside the Zimbabwean dollar, which can buy and sell it using Zimbabwean dollars and other foreign currencies.