Asian markets already have one eye on the weekend it appears, with price action subdued across the board after a cautious New York overnight session. The data calendar is a threadbare cupboard for the region today, meaning that markets are only likely to move forcefully on unexpected headline surprises.
Overnight US jobless data was unimpressive, with both Initial and Continuing Claims disappointing. The headline figures showed a sliver of improvement over last week though that they did not derail the hopes of the V-shaped recovery mafia populating the equity markets. Never let the facts get in the way of momentum and a preferred narrative.
US markets appear to be balanced for now. On one side, geopolitical concern, along with Covid-19 worries in the US and China are tempering the bullish optimism. Likely also helped by the sheer weight of bullish positioning in the markets. On the other, there have been no armageddon data prints, and the world’s central banks continue to restate; that they will ease to the end of the universe and back to support a global recovery.
The US Dollar continued strengthening overnight, suggesting that nervousness persists. The aforementioned bullish positioning probably has as much to do with that, as any headlines dominating the wires. With the weekend upon us, and plenty of risks to go around for everybody, further downside corrections to equities cannot be ruled out.
Asian equities trading flat ahead of the weekend.
Volatility has flatlined in equity markets this morning, with most major indices ranging each side of unchanged. The Nikkei 225 is 0.30% higher, the Kospi is down 0.50%, and Mainland China’s Shanghai Composite and CSI 300 are both 0.70% higher. Singapore is down 0.70%, and Hong Kong is unchanged.
One exception is Australia, where preliminary retail sales data for May boosted local markets. Having fallen by 17.70% in April, the preliminary May figure is showing a sharp rebound of 16.30%. That has lifted the Lucky Country’s stock markets. The ASX200 and All Ordinaries are both 1.10% higher.
With a lack of material drivers today, and with the weekend upon us, regional investors are likely to reduce risk, meaning that any rallies will be small in scale and probably short in duration.
The US Dollar continues to strengthen.
In contrast to equity markets, currency markets continued to take risk off the table overnight. The US Dollar strengthening across the board, with the US index rising 0.27% to 97.42 overnight. As in previous days, the strongest recipients of the Dollar malaise of the past weeks, continued suffering the most. EUR/USD retreated by 0.35% to 1.1200, with GBP/USD falling 1.10% to 1.2410, after the Bank of England increased its quantitative easing target by GBP 100 billion.
Among the commodity currencies, the AUD/USD came in for more unwelcome attention. It fell by another 0.50% overnight against both the Dollar and the Yen. AUD/USD has critical support at 0.6800, with a daily close below that level signalling the downward correction has further to go.
Asian markets are moribund today, with regional currencies almost unchanged versus the greenback.
The currency markets reluctance to find a floor versus the US Dollar, even as equity markets steady, hints that the culling of bullish global recovery positioning is not yet complete.
Iraq lifts oil prices.
If other markets are nervously long now, oil can thank Iraq for a stay of execution. Overnight, Iraq said that it would meet its OPEC+ production cuts and would make good in coming months, the targets it had previously missed. Signs that European consumption is rebounding also assisted supporting prices.
Brent crude rose 2.0% overnight to $41.40 a barrel, helped by the slight backwardation at the front end of the curve. WTI rose an impressive 3.0% to $38.85 a barrel. This morning, both Brent and WTI continue trading on the positive side, rising to $41.85 and $39.20 respectively.
The price action on both contracts shows solidity at these levels, as oil markets ignore the concerns rolling across other asset classes at the moment. That suggests that prices are supported by physical buyers, and not speculative ones. That news is welcome as it implies that physical demand across the globe is recovering, with its implications for economic growth.
What oil prices do lack, though, is momentum. Both contracts appear to be in consolidative mode at these price levels, lacking the momentum to break higher. The key resistance levels to overcome to change that equation, are $43.80 a barrel for Brent crude, and $40.00 a barrel for WTI.
Gold prices continue to be dominated by short-term flows.
For the 6th day running, Gold has settled within a 10-dollar range despite some decent intra-day volatility. That highlights that the price action is being dominated by short-term fast money flows, with longer-term players content to bide their time on the side-lines. Gold continues to see patient buyers on dips to $1710 to $1715.00 an ounce, with equally patient sellers lying in wait on any spikes towards $1740.00 an ounce.
Gold prices seem to be at equilibrium for now. Balanced between geopolitical and Covid-19 concerns on one side, and economic recovery hopes on the other. Gold has edged higher by 3 dollars to $1725.50 an ounce this morning on light volumes, as regional investors quietly add weekend risk hedges to their portfolios.
Looking at the price action in other asset classes as well, Asia seems to be settling in for a quiet and low-stress end to the week.
