Recovering and conical nerves persist
Wall Street dipped slightly overnight, with markets swinging between worries about the U.S. recovery after a pessimistic Fed Beige Book and waning nerves after New York Fed Chairman Williams said the reduction could occur sooner rather than later. William’s comments were backed up by a monster 10.924 million JOLTS Jobs Openings post suggesting that jobs are not the problem in the United States; it pushes Americans to take those jobs. This is, in a way, to improve upon the shock of a non-farm payroll print last Friday.
Stirring the pot further, US Treasury Secretary Yellen sent a letter to Congressional leaders overnight warning them that the US government will run out of money in October unless Congress agrees to raise the debt ceiling . Given the polarized nature of US politics these days, you wouldn’t bet against a serious game of blinking developing between the two sides, and we haven’t even hit the 3.5 trillion packet yet. President Biden.
So, we have a lot of uncertainty pulling the markets back and forth without any clear theme developing and lots of risks circulating. So it’s no surprise that investors pushed stocks slightly lower. However, the main beneficiary of a move towards security has been the US dollar, which has made a pretty impressive comeback. The US stock markets could easily drop 10% and stay in a creeping bull market, so that’s not a big concern to me. I don’t see the buy-the-dip mafia being able to withstand a major setback; look at Chinese stocks. Perhaps this month’s FOMC will provide much-needed clarification on the Fed’s cut; I won’t hold my breath, however. I can see September characterized by danger when overtaking, turbulent range exchanges to come.
China’s inflation data passed without incident this morning. August year-on-year and month-on-month inflation hit 0.80% and 0.10%, respectively, below expectations. The PPI YoY climbed to 9.50%, but it was only slightly higher than in July and at a good price. lots of “suggestions” for kids and online games. Another day, another intervention by the Chinese government. I remain concerned that buying lower Chinese stocks is a dangerous activity at the moment.
Bank Negara Malaysia is announcing its latest policy decision today, with markets likely to be less concentrated than usual. The Malaysian ringgit has rallied impressively in recent times, removing this pressure from the central bank. The BNM also said its priority was to support the country’s recovery from a pandemic. This should see rates stay at record highs of 1.75%, with only a surprise cut shaking the tree.
Today, attention will focus on the political decision of the European Central Bank tonight. He is likely to drown out any reaction to Germany’s trade balance this afternoon. Of course, rates will remain unchanged, with markets only interested if the ECB announces a dovish cut to its pandemic support bond purchase program, or at least signals a timeline for it. Despite a few hawkish inflation slaps from some members of Northern Europe, I think the doves will win this time around. A tapering, whether by reducing the targeted amounts of bond purchases or by doing less months, but over a longer period (a very European kicking strategy), should support the euro.
Asian equities err on the side of caution
US stocks fell overnight as mixed signals on recoveries, employment and the slowdown in quantitative easing prompted investors to be cautious and pull their exposure off the table. The S&P 500 fell 0.12%, the Nasdaq fell 0.56%, and the Dow Jones fell slightly 0.20%. Negativity continues in Asia, with futures contracts on all three indices down 0.20%.
This sense of caution has spread to Asia today, which is in the red. The continued crackdown on Tencent and NetEase is further dampening the mood on the mainland and in Hong Kong. I still believe that buying Chinese stocks on the downside is only for the more optimistic or the more agile.
Japan finally took a break to catch their breath after the impressive rally of hope to revive Suga’s resignation. The Nikkei 225 is down 0.60% this morning but is still 5.0% higher for the week. In South Korea, the Kospi is down 1.05%, continuing a tough week with its high beta on the global recovery.
In China, the news from Tencent and NetEase has cooled people and underscores that the government’s “shared prosperity” campaign still has a lot of juice. The Shanghai Composite fell only 0.15%, but the CSI 300 was down 0.50%. Hong Kong, home to the lists of many Chinese tech behemoths, including Tencent, is suffering the consequences, fell 1.55%.
Singapore’s Straits Times was up 0.20% today, sentiment perhaps bolstered by the arrival of the first flight from Germany under the no-quarantine program. After days of conflicting virus advice from various government departments in Singapore (very anti-Singapore, I can assure you), there is no such thing as a light at the end of the tunnel to come back up. the moral.
Elsewhere, however, the picture is mixed. Kuala Lumpur fell 0.75% ahead of the BNM policy decision, while Bangkok is unchanged, while Jakarta and Taipei are up 0.20%. With a high beta of the global recovery, Australian markets scared these fears overnight, led by resource companies. The ASX 200 plunged 1.65%, while the All Ordinaries fell 1.50%.
Asia’s generally nervous performance, coming after a cautious session on Wall Street, should see European stocks open lower this afternoon, particularly with an ECB policy meeting ahead. With many mixed signals pushing investors back and forth right now, it’s no surprise that many are choosing to sit on the sidelines and wait for the fog to clear.
Uncertainty equals a stronger US dollar
You can take your pick from the US recovery, the global recovery, the US debt ceiling, the Chinese government’s ongoing crackdown on the private sector, the tapered nerves of the Fed and the ECB, or just the old pandemic. All of this adds up to a mishmash of mixed signals now, and in such markets, a flight to safety, i.e. the US dollar, is almost inevitable.
With that in mind, it was not surprising to see the US dollar rally again overnight, with the dollar index climbing 0.20% to 92.70, where it remains in Asia, which again appears in opossum in lighthouse mode. The overnight rise leaves the index in the middle of its recent trading range of 92.00 to 93.20, which I think will always contain the trading of the week.
EUR / USD and GBP / ISD both eased overnight at 1.1820 and 1.3765, remaining unchanged this morning. EUR / USD’s support at 1.1800 is unlikely to be called into question unless the ECB is very dovish, with biased risks for further rallies after the meeting. GBP / USD, on the other hand, broke a bullish support line at 1.3800 on Monday, which rose to 1.3830 this morning. With record worker shortages, made worse by Brexit, threatening consumer goods shortages and ongoing tax hikes, the GBP / USD rally to 1.3900 last week could be its best performance in some time. .
The deteriorating global risk environment weighs on AUD / USD and NZD / USD, both dropping overnight before falling further 0.10% to 0.7360 and 0.7090 in Asia. New US strength and failure of nearby support at 0.7345 and 0.7075 respectively threaten further losses at 0.7300 and 0.7000 this week, possibly more.
Asian currencies are currently trading quite mixed. The Malaysian ringgit continues to hold near a recent high with USD / MYR at 4.1470 today. Attractive carry, a new prime minister and firmer oil prices continue to offset the woes of the pandemic, a trend I am noticing in the currency space. Meanwhile, the South Korean won and the Indian rupee experienced sharp reversals. USD / KRW up to 1170.25 and 73.669 this morning, with KRW and INR down around 1.0% this week. Both countries arguably have a larger delta from the global recovery, and both could experience rapid cash outflows to the Japanese and Chinese markets this week. If Chinese stocks fall sharply again and risk sentiment improves, both should post strong gains.
With the relatively light global data schedule this week, the forex markets have been left to fend for themselves and will always jump on sentiment changes. Yesterday and today it is negative, leading to the strength of the US dollar, tomorrow it could be positive, leading to the weakness of the US dollar. I expect the chop party to continue without a small amount of chases.
Oil prices go up overnight
Speaking of choppy range trading, the oil markets are doing just that this week. Prices rose overnight, apparently because production in the Gulf of Mexico is struggling to pick up. But when you look at this week’s ranges, last night’s price increases simply brought Brent and WTI back roughly unchanged for the week. This suggests that the street is divided in the short term, as the disrupted production of the Gulf of Mexico is offset by the nerves of the global recovery. Thus, the oil markets are currently suffering from a lot of noise but little substance.
Brent crude rose 1.60% overnight to $ 72.65, adding an additional 10 cents to $ 72.75 a barrel in Asia. WTI rose 1.33% to $ 69.30 and added five cents to $ 69.40 a barrel in Asia. With comatose Asian trade, we are awaiting the New York markets again tonight to set the tone.
Brent crude has double highs nearby at $ 72.80 and $ 73.70 a barrel. Support is at $ 71.35, 100-DMA, and $ 70.50 a barrel. WTI has resistance at $ 69.75 and $ 70.60 per barrel, with support at $ 68.35 and $ 67.70 per barrel.
Gold struggles once again
Gold continues to warn that its bullish momentum has weakened significantly and its rally is in trouble. Overnight, another bout of US dollar strength saw gold fall 0.25% to $ 1,789.50 an ounce, down slightly to $ 1,788.00 an ounce in Asia.
Gold still looks very vulnerable to further strength in the US dollar. Yesterday’s $ 1,797.50 an ounce short blanket in Asia looks like a dead cat bounce. If the US dollar accidentally falls tonight and gold does not recover yet, the outlook will become even bleaker.
Gold has resistance near $ 1,800.00, followed by DMA 100 and 200 at $ 1,809.50 and $ 1,815.65 per ounce. Support is at $ 1782.50 overnight low followed by $ 1780.00 an ounce. If $ 1,780.00 fails, gold could drop to $ 1,750.00 an ounce.