Concerns over Evergrande and international contagion effects vanished overnight in a session that was notable for the unwinding of risk premia in the US dollar and gold. Fed Chairman Powell said the risks would be contained in China with the press running stories today say the government had apparently told local governments to prepare for an Evergrande collapse.
None of that seemed to matter however as Wall Street hit the buy button until it broke with US stocks rallying powerfully. In another unusual development, despite markets being “comfortable” with the impending Fed taper which likely starts at the year end, US bond yields also rose substantially across the curve overnight. Clearly, some parts of the market are more comfortable than others. We have, of course, been led down the higher US yield path before, only for it to be a box canyon. If a rise in US yields is sustained though, it will be interesting to see how long the Tina-massive can keep forcing equities higher.
The US build-back-better bill and debt ceiling saga continue to rumble along in the background, gone but not forgotten. I have a feeling that the passage of both is a story with more still to give. The US Budget Committee is meeting this weekend regarding the USD 3.50 trillion bill and developments on that front, or the debt ceiling could yet cause some Monday morning volatility. That might explain gold’s recovery in part this morning. We also have a veritable crowned bar of Fed speakers to come today, including Chairman Powell.
This weekend also sees the German federal election. Although there is much noise surrounding the outcome, the possible coalition permutations are labyrinth and will almost certainly not be clarified on Monday, or next week. The election may be good for some intra-day volatility in the Euro on Monday morning Asia time, but not much else.
The PBOC has injected another CNY 120 billion via the 14-day repo again today, and this time, it appears to be soothing Evergrande nerves. That is despite offshore US bondholders reporting that they have not received their coupon payments, due yesterday, and reports of missed salary payments at their EV subsidiary. Gold once again appears to be the preferred method of hedging that weekend risk with Asian investors today.
The Turkish Lira (TRY) become TRY-my-patience with investors overnight after the central bank unexpectedly cuts rates, despite inflation being near 20%. USD/TRY rose 1.22% to 8.7700 on the latest dose of Erdogan-omics and has 9.00 written all over it once 8.800 breaks. In contrast, a slightly hawkish tone to the Bank of England policy decision saw sterling leap in overnight trading as markets rushed to price in an early 2022 rate hike.
Japan’s Core Inflation rose to, errrr, 0.00% this morning, with headline Inflation holding steady at -0.20%. This appears to be a cause for celebration in Japanese markets who take what they can get after 20 years. Jibun Service Flash PMI for September also rebounded to 47.4, still contractionary, but less so than previously. The Nikkei is on fire today after Japan returned from holiday so even less bad news would be good news in a market like this.
Singapore Industrial Production should recovery into positive territory later today, but it and Malaysian Inflation will be of only passing interest to local markets, myopically focussed on developments in China. With an election on Sunday, Germany’s IFO Business Climate data today is likely to meet the same fate. US markets are in buy everything mode as the week closes, and only some hawkish words from Mr Powell or his fellow Fed presidents are likely to make the Tina’s turner to the downside.
