More pirouettes than the Bolshoi ballet
If the financial markets were a ballet, it would surely be considered one of the most complex in history. No Sleeping Beauty or Swan Lakes here; instead, the markets engage in a seemingly impossible series of spins, (faith) jumps, and changes of direction that would test the toes of any prima ballerina.
Overnight, a series of Federal Reserve officials walked over to the orchestra pit and performed the transitional inflation arrangement. Last week what was ignored was not in last night’s performance, as the whole buying of everything freed itself from its constraints and returned to business as usual. The energy prices were given a standing ovation and the bouquets of flowers.
Stocks rebounded, especially tech as long-term US yields headed south as the US dollar sold off, especially against Asian currencies, and our dear friends in the crypto space rose. Bitcoin’s boost was aided by Elon Musk, who tweeted something about mining, a good reason to indulge in a crypto-feeding frenzy, I guess. I may need to revise my “Peak Elon” outlook.
Gold has remained stable overnight because who wants gold when the world is saved? It has started to pull back in Asia and I suspect some weekend crypto hedge trades are being unwound. The Chinese yuan hit nearly two-year highs against the dollar as its basket of currencies rose against the greenback. Some corners of the market will suggest that a stronger yuan is an easy way for China to remove heat from commodity prices, but it would come at the cost of more expensive exports.
If nothing else, the buy-all rally, which is sweeping through Asian markets this morning, naturally highlights how much money waits on the sidelines in a zero% world to buy down. Even the Fed Governor’s long treaty on an overnight digital US dollar failed to keep Bitcoin or the US dollar unstable. It should.
Granted, while prices have risen around the world, there have been enough downturns in data along the way, especially in the US recently, to leave financial markets in lingering doubts. The Federal Reserve is determined to keep it that way, possibly with a tantrum in mind. An inflationary punch from Mike Tyson has yet to be struck, which has led to a seemingly endless cycle of rocking behavior in recent times. Hopefully the non-farm payroll data will clear things up by the end of next week, one way or the other.
In the meantime, don’t take off your ballet shoes and be ready to continue spinning.
In Asia, the data, although second level, is now optimistic. South Korean consumer confidence has risen again but will not move the Bank of Korea this week. Singapore’s final GDP in the first quarter rose 3.1% from the first quarter, and Thailand’s trade balance for April slightly outperformed, increasing by $ 0.18 billion. The effects of the Lunar New Year have had an impact on Thailand’s numbers, but the overall picture for today’s data is of a modest recovery continuing.
None of the data will have an impact, as each of the countries mentioned, and most of the countries in Asia outside of China, are struggling to cope with the waves of Covid-19 infections. Of most concern is Malaysia, with India at half the price of markets that will focus solely on dropping daily cases to slightly less gigantic numbers than before. The weakness of the Malaysian government prevented it from entering a decisive lockdown. The danger is that the have-and-eat-your-cake approach, which has unceremoniously failed everywhere else in the world, will lead to a double-dip recession in Malaysia.
Finally, readers should keep an eye out for the Turkish Lira today. Turkey has announced the sacking of one of four of its deputy central bank governors. Working for the central bank is a dangerous occupation under Erdogan, and previous layoffs have resulted in bouts of weakness in Turkish liras (TRY). USD / TRY is unchanged at 8.3900 for now, but not far from recent highs at 8.5700. That could change as Europe arrives, with Mr Erdogan intending to try the patience of investors, rather than trying harder to manage the economy properly.
Asian stocks jump after Wall Street
Trade at all is booming in Asia today after Wall Street decided overnight that inflation was not an issue and did the same. The S&P 500 climbed 0.99%, the highly technological Nasdaq surging 1.41% and the Dow Jones rising 0.56%. Futures on all three continued to advance 0.20% in Asia.
The Nikkei 225 climbed 0.55%, with the Kospi advancing 0.70%, but Chinese stocks are leading the charge higher. The Shanghai Composite jumped 1.60%, while the CSI charged 2.0% more, with Hong Kong rising 1.30%. A few factors seem to have awakened the Chinese markets from their recent slumber. A bullish report on Chinese stocks from Morgan Stanley cites rumors that the PCB will buy USD / CNY at 6.4000, capping the strength of the Yuan, and another Chinese official reiterating that it will tackle “abnormal fluctuations ” raw material.
The image is also green in the rest of Asia. Singapore is up 0.50%, Bangkok 0.85%, Manila 0.60%, with Taiwan up 1.0%, behind Jakarta, which jumped 1.20%. Only Kuala Lumpur is lagging behind, flat on the day as the economic fallout from its new wave of Covid-19 dampens its prospects for recovery. Australian markets are ignoring new cases from the Covid-19 community in Victoria, with both the ASX 200 and all ordinaries up 0.60%.
As markets just hitch their cars to Wall Street now, Europe’s return from vacation should see stock markets open higher this afternoon. As I mentioned yesterday, Wall Street’s mood swings are a complete turkey session right now, and I’ll wait and see if today becomes a ‘do we worry about the again’ session. inflation ”, or not.
US fades as risk appetite rebounds
The US dollar fell against major currencies overnight as New York decided to have a weaker session on inflation risk, which saw a rebound in risk appetite, leading to a rotation out of safe haven US dollars. The dollar index fell 0.20% to 89.84, falling again to 89.77 in Asia. Overall, the dollar index remains in its recent range of 89.60-90.30, with its next directional move signaled by a breakout of one of these levels.
The story is pretty much the same with the majors. EUR / USD and GBP / USD rose to 1.2225 and 1.4180 respectively in Asia, with resistance near 1.2250 and 1.4245. Both continue to chart higher daily lows, and it will likely take a sudden deterioration in the history of the global recovery to delay future recoveries.
Things are getting more and more interesting in the Asian currency space today, with the USD / CNY falling to an almost two-year low overnight. USD / CNY fell again to 6.4050 in Asia, before recovering to 6.4120 after rumors swept the market that state banks were on the offer at 6.4000 for the PBOC, capping the yuan’s gains. Interestingly, the offshore (and more freely traded) USD / CNH fell all the way to 6.4005 before rebounding to 6.4060. For the first time in a long time, USD / CNH diverged from USD / CNY, showing more strength in the yuan.
A fall of 6.4000 by the onshore yuan would be a strong signal of more strength to come, and by default, more gains in the FX Asia space against the US dollar in general. This will require inflation to be removed or for the transient narrative to continue, which is not certain at this time, with a lot of price action drifting.
Oil prices skyrocket
It seems the speculative longs that were shot last week cannot leave the oil trade alone, with Brent and WTI capitalizing on the second day of explosive rallies. Brent 2.60% higher at $ 68.40 per barrel. Meanwhile, WTI climbed 3.40% to $ 66.05 a barrel. The two remain unchanged in Asia, with importers reluctant to continue rising markets.
A weaker US dollar helped the rally to the periphery. Yet New York markets appear to have convinced themselves that the threat of Iranian oil returning to world markets is no longer such a concern and that a recovering global economy will absorb the additional supplies. Oil markets can also observe the decline in Covid-19 cases, from terrible numbers to lower terrible numbers, by making a recovery connection and pressing the buy button.
The whole rally of the past 48 hours is starting to resemble the speculative herd behavior sweeping through crypto-space. Unlike cryptos, energy is supported by real fundamentals, but the pace of the recovery feels like money burning in search of a home, and oil could spend the next two sessions consolidating those gains.
Brent crude has resistance at $ 70.00, followed by $ 72.00 per barrel, with support at $ 66.50 and $ 64.50 per barrel. The latter being a critical point of the graph which went wonderfully last week. WTI has resistance at $ 67.50 and $ 68.00 per barrel, with support around $ 64.00 and $ 62.00 per barrel.
Gold can correct lower
The gold rally came to a halt last night, with prices almost unchanged at $ 1,881.00 an ounce. Once again, an attempt at the resistance level of $ 1,890.00 an ounce faded, and this morning gold was down 0.30% to $ 1,875.00 an ounce.
What is concerning for the gold rally is that longer-term US yields and the US dollar fell quite significantly overnight. Both should have been strong factors in favor of pricing. Looking at the strong rallies in the crypto space yesterday, I can’t help but wonder if some of the weekend’s trading hedges are being reversed, pushing gold lower. There seems to be an inverse correlation lately; what an irony.
Aside from the Bitcoin dip, gold’s Relative Strength Index (RSI) moved into overbought territory on Friday and is generally a good indicator of a corrective reversal in progress. As such, gold may continue to shy away from some recent gains, but its rally remains intact as long as the 200-day moving average (DMA) at $ 1,845.00 an ounce remains intact.
Overall, gold has drawn a long-term structural low at $ 1,680.00 an ounce, and the long-term uptrend remains in play as long as the support at $ 1,800.00 holds. Resistance remains at $ 1890.00 per ounce, after which I expect $ 1900.00 to give up fairly quickly on the option and also buy-stops, dropping to $ 1920.00 per ounce.
$ 1,850.00 to $ 1,890.00 an ounce will likely cover the gold price action for the remainder of the week.