Lots of noise, but little substance probably describes the last 24 hours in global markets. US equities moved sideways overnight, the US Dollar was steady versus major currencies, US yields edged a little higher, while oil, a consistent outperformer, received a Libyan and Kazakhstan boost.
The US data dump overnight held no real surprises. ISM Non-Manufacturing PMI fell, as did Non-Manufacturing New Orders, Employment, Activity and Prices indexes. Like the soggy UK and European PMIs earlier, all of this can be laid at the door of omicron’s arrival. Notably, US Factory Order and Weekly Jobless Claims held steady, hinting that despite the omicron hit to services, underlying strength continues in the economy.
None of the data was enough to materially move the needle, especially when we have US Non-Farm Payrolls this evening. With a median forecast of around 400,000 jobs, we are likely to need a number lower than 250k, or higher than 550k, to drive a Fed risk-on, or risk-off, move to finish the week.
US equity index futures have put in a strong performance this morning, and it appears that the lack of new news is finally flushing out the buy-the-dip gnomes. That has been reflected by higher equity markets in Asia as well, especially those of Japan and Australia, which track Wall Street like a wide-eyed pu8ppy these days. Buying the dip has been a wonderful strategy over the past 21 months and I’m not about to diss it now. Central banks are still qualitatively easing, and the cost of capital from them is still far too close to zero, and with omicron a minor storm in a test-tube in the markets’ minds, the recovery could easily extend into the end of the week and potentially for much of January.
Japan’s Household Spending and Tokyo CPI also showed signs of an omicron discount today. That hasn’t impacted Tokyo markets or the Yen though. Notably, Japan, Australia (on a state basis), and the Philippines are all looking at bringing back virus restrictions to a greater or lesser degree. China also imposed testing restrictions on those trying to leave Shenzhen, which is adjacent to Hong Kong. Indonesia has tightened border measures to 10 days quarantine to keep the bug out, while Jakarta has raised alert levels. All this points to an Asian market that is nervously waiting for omicron and explains their reluctance to buy fully into the post-omicron rally sweeping US markets these last few weeks.
Next week’s data calendar in Asia is fairly thin still. China and India release inflation data with India being of more interest, given its risks to the upside. The Bank of Korea announces its next policy rate decision. I am expecting rates to remain on hold at 1.0% with an upside bias. That allows them to keep an eye on omicron and the economy while signalling their overall hawkish bias. Signalling a hawkish bias is important as USD/KRW has risen above 1200.00, a previous BoK redline. We are likely to see more stories like this in Asian currencies this year as the Federal Reserve gets busy with monetary policy normalisation.
Asian equities rise with US futures
Equities traded sideways overnight as US data balanced itself out and with bulls nervously on the sidelines after the rout of the past few days, and ahead of tonight’s US Non-Farm Payrolls. However, the buy-the-dip couldn’t contain its addiction anymore, especially with the news tickers remaining quiet. Overnight, the S&P 500 and Nasdaq finished just 0.10% lower, with the Dow Jones easing by 0.47%. Asia has seen futures on all three rise strongly initially, before easing back slightly. Nasdaq futures are 0.55% higher, with S&P 500 0.25% higher, and the Dow futures 0.15% higher.
The futures rally sparked an initial flurry higher in Japan Australia and South Korea, before retreating slightly. Asian markets are mostly higher to finish the week though, thanks to playing follow the leader(Wall Street). The Nikkei 225 is now in negative territory, down 0.40%, after the Japanese Finance Minister commented that FX stability is important. Markets are interpreting the comments as implying the government is displeased with the pace of the Yen fall. South Korea’s Kospi, meanwhile, is 0.70% higher.
In China, markets are trading positively with a story circulating from REDD that policymakers will exclude debt accrued by property developers from buying up distressed assets from weaker developers, from their overall debt compliance ratios. That’s a mouthful but basically, it looks like State-Owned Enterprise (SOE) developers are going to get a juicy carrot in return for taking on the assets of weaker private developers. The Shanghai Composite and CSI 300 are 0.35% higher, while Hong Kong, home to the troubled listings of many developers, is up by 1.20%.
Across the region, Singapore and Jakarta have rallied by 0.60%, with Kuala Lumpur and Bangkok rising by 0.25%. Taipei and Manila are bucking the trend, down 1.0% and 1.20% respectively. Semiconductors are leading Taipei lower for some reason while soaring omicron positivity rates are weighing on Manila. Australian markets are in a buoyant mood, with the US futures rally greenlighting the buy-the-dip gnomes of Sydney to rush out of hiding. The ASX 200 and All Ordinaries have leapt an impressive 1.40% today.
I did mention yesterday that the bearish sentiment might only last until the New York session. I was off by about eight hours, but with a thin calendar ahead, European markets should open higher today as will New York. Only a very high Non-Farm Payroll print will spoil what should be a positive finish to the week tonight.
The US Dollar holds steady
The US Dollar contented itself with range-trading once again overnight, the index closing almost unchanged once again at 96.24, before slipping to 96.22 in a moribund Asian session. EUR/USD is steady at 1.1300, GBP/USD 1.3545, and USD/JPY at 115.85 in Asia today, barely changed from the New York close and with USD/JPY ignoring “watching FX closely” noise from the Japanese Ministry of Finance. Slightly firmer yields continue to limit the US Dollar downside versus the major currencies, which appear to be in a holding pattern into the Non-Farm Payrolls. I await a dollar index break of either 95.50 or 96.50 for the next directional signal.
The AUD/USD and NZD/USD risk sentiment indicators both remained under pressure overnight, hinting that despite the calm seen elsewhere, nerves abound about the Fed tightening story and higher US yields. AUD/USD and NZD/USD finished around 0.805 lower at 0.7160 and 0.6750 where they remain in Asia. The risk is still skewed to the downside. USD/CAD bucked the trend overnight, CAD strengthening as USD/CAD fell to 1.2715, most likely dues to the 2.0%+ rally in oil overnight. It remains to be seen whether a sell-off under 1.2700 can be sustained.
Asian currencies are quiet today, edging slightly higher, but overnight weakened through some significant levels versus the US Dollar. USD/KRW has climbed through 1200.00 to 1202.00. USD/PHP has risen 51.20 and USD/IDR to 14,400.00 approaching 14.500.00. USD/MYR ignored the rise in oil, climbing to 4.2100 before retreating to 4.2000. The Thai Baht also joined them, weakening by over 1.0% as USD/THB trades at 33.578 today. The Yuan and Indian Rupee continue to outperform. For the rest, it will be interesting to see if their respective central banks step out of the shadows and start offering US Dollars again. Their hands will be stayed ahead of the US Data tonight, but next week could be a different story. Slowly but surely, the normalisation story by the Fed is seeping into weaker Asian FX, leaving regional central banks with a policy dilemma.
Oil rallies impressively
As mentioned yesterday, oil’s price action is bullish, as it shrugged off a series of seemingly bearish news inputs over the last 48 hours. That news swung the other way overnight, with domestic protests disrupting local production, and with the arrival of Russian paratroopers to restore order. Libya is also struggling to maintain production due to maintenance issues.
That saw oil prices soar overnight, with Brent crude climbing 2.40% to $82.00 a barrel, and WTI rocketing 3.20% higher to $79.65 a barrel. Additionally, the backwardation of the oil futures curve has started widening once again, implying that prompt demand is robust. In Asia, the rally has continued, driven by Kazakhstan nerves (1.6 million bpd), Brent crude climbing 0.60% to $82.50, and WTI rising 0.50% to $80.00 a barrel.
Brent crude has support at $79.60 and the 100-day moving average (DMA) at $78.00 a barrel. It has resistance nearby at $83.00 a barrel and could retest $86.00 next week. WTI has support at $78.50 and $77.50 a barrel. Having captured $80.00, a weekly close above here this evening signals more gains targeting $82.00 and potentially $85.00 a barrel.
Gold continues to fade
With US yields and the US Dollar holding their gains but trading sideways, gold gave way overnight, slumping 1.07% to $1790.85 an ounce as the bulls, once again, threw in the towel. Given the price action overnight, it appears that gold is still vulnerable to higher US yields and a higher US Dollar. Any rallies should be approached with a great deal of caution and scepticism.
Gold has recovered slightly to $1792.50 an ounce in Asia, but it looks very much like a dead cat bounce. It is relying on a weak US Non-Farm Payroll print tonight to salvage the situation. $1790.00 to $1820.00 remain my calls for the weekly range, but clearly, the downside has become the weaker side. Gold has resistance at $1810.00 and $1830.00 an ounce, although it would be a huge surprise if we saw those levels today. Support lies at $1785.00, followed by $1780.00 and $1760.00 an ounce.
Kazakhstan bites Bitcoin
Bitcoin and other digital Dutch tulips have endured a torrid week thus far, with Bitcoin falling 4.0% to $41.400.00 in Asian trading. Kazakhstan is the world’s second-biggest Bitcoin mining hub and while Russian troops are shooting protestors there to restore order, Bitcoin mining and the internet have been taken offline. I am struggling with a couple of crypto concepts at this point.
If there is less Bitcoin mining being done, surely the prospect of lower supply is bullish, and not bearish for Bitcoin. Certainly, the limited supply is what “institutional experts” have been saying is a major reason Bitcoin’s price is going to the mood, or at least $100,000.00? Maybe it’s something to do with distributed ledger monitoring going offline as well, but that would involve blockchain, and I haven’t heard that mentioned in the same sentence as crypto for over a year.
Secondly, how can cryptos become replacements for fiat currencies around the world when mining and ledgers are located in Kazakhstan? We don’t call it the Norway or Switzerland of Central Asia do we? For that reason, having the world of crypto’s reliant on any country ending in “‘stan” or “‘ia” seems risky. Only the European’s have been that stupid in recent times, tying their gaseous energy security to Russia; and look where that’s got them?
Anyway, a weekly close this evening below $42,400.00 would be a negative technical signal. But I believe $40.500.00 and $39,500.00 are the real levels to watch. Before the haters come out and throw dirty tee-shirts and empty pizza boxes at me while singing Bella Ciao, I believe the sell-off has come too far, too fast. Also, note my supply comments above re Bitcoin mining disruption. The relative strength index (RSI) indicator has moved into very oversold territory, suggesting Bitcoin could rally from here. I see no reason why it could not recapture $45.000.00 in the shorter term.
Either way you look at it, this weekend Saturday and Sunday trading sessions could be emotional whether you are long or short. V for volatility, not direction.
