Markets fall at the end of the week
New York had a relatively quiet session overnight, with Europe announcing that its next round of sanctions would include Russian coal imports, with no impact on energy prices. A relatively slow calendar and some new developments in Eastern Europe saw Wall Street stocks reversing intra-day losses to close slightly higher, long US yields up, and the US dollar posting very modest gains .
St. Louis Federal Reserve Chairman Bullard was the latest Fed talking head to come out with a series of scathing statements on future monetary policy. The fact that equities have corrected intraday losses suggests that 225 basis points of fed funds’ futures markets may be priced high enough for now. This is the Fed’s battle to lose, not to win. This could hold for breath the rally of the US dollar over the next fortnight, but I believe the real stress points are the Federal Reserve’s quantitative tightening, slated for early May, and the market’s appetite to absorb selling. Will be
In Asia, markets are becoming increasingly concerned about China as Shanghai continues its lockdown and it reports more than 24,000 virus cases today. China’s zero-COVID policy remains its Achilles heel, although there are other reasons to be a little cautious. A severe diffusion into other big cities outside of its finance and commercial would be a major headwind for China’s growth, China’s stocks and eventually defaulting to much of Asia.
Despite talk of helping SMEs and propelling the stock market, little has happened since Premier Li Keqiang’s opening remarks. PBOC has set neutral USD/CNY fixes this week and has pulled out net CNY 580 bio from the system this week via open market operations. Perhaps some could interpret this week’s two-day holiday as a drain of excess liquidity, but unless China backs up its rhetoric with action, ironically like the Federal Reserve The environment for China’s equities will be challenging. We can see that 1 year MTF is going to be trimmed soon with RRR deduction.
The data for Asia today has been mostly positive. South Korea’s current account increased to 6.42 bio, Japan’s yen increased to 1643 bio, while the Philippines’ current account deficit fell to $3.53 bio. The data is from February and thus, looking a bit backwards. At that stage, all three were still enjoying a premium from the easing of virus restrictions, with a boom in South Korean and Japanese exports. However, the data for all three hides an increase in import costs as the Ukraine war begins, and I expect those costs to continue to have a negative impact on the region’s data going forward. That should be enough to distract the Bank of Korea from penciling in a 0.25% rate hike next week.
Today’s main event in Asia will be the Reserve Bank of India’s latest interest rate decision. INR has been stable in April after a roller-coaster ride in March, but RBI has shown little respect for currency in its policy mix over the past 2 years, bearing inflationary pressures as the cost of keeping the economy running has done. This is unlikely to change today, especially considering the events of the past 6 weeks. Policy rates should be left unchanged at 4.0%.
Otherwise, Data Calendar is decidedly second-rate and cool across Europe and America. I would not be surprised if the situation we are seeing in Asia today continues to New York. If oil continues to fall, equities should end the week on a positive note, at least temporarily.
Keep an eye out for the first round of the presidential election in France later this week. The election on April 24 should limit the second runoff to President Macron and far-right candidate Marine Le Pen. A strong performance by Ms Le Pen this weekend will send a cold through Europe and another reason to sell the euro and European equities on Monday.
Asian Shares Mixed
Wall Street reversed intraday losses to post some modest gains overnight, with the market moving past the Brainard shock on Wednesday. With oil prices plunging after details of the IEA reserve release emerged, Wall Street staged a modest relief rally. The S&P 500 ended 0.43% higher, the Nasdaq 0.06% higher, the Dow Jones 0.25% higher. Futures on all three indices are almost unchanged in Asian trading.
It has triggered a relief rally in parts of Asia, though not with North Asian giants such as Japan, China and South Korea. Nikkei 225 is flat for the day, Kospi is down 0.10%. The Shanghai Composite is also down $0.10, the CSI 200 is unchanged, and the Hong Kong is down 0.40%. It looks like a flat Nasdaq close around Shanghai and persistent virus nerves are limiting gains on all three.
In regional markets, the picture is more positive, helped by Brent crude’s fall to $100.00 a barrel. Singapore is holding back due to stories highlighting the slowdown in property markets in the Asia-Pacific. Large banks have reduced Singapore by 0.75%. However, Kuala Lumpur increased by 0.25%, Jakarta by 0.75% and Taipei by 0.40%. Bangkok is just 0.20% lower, with Manila climbing 1.0% after the trade deficit narrowed. Australian markets are following Wall Street’s lead and are ending the week on a positive note. The ASX 200 and All Ordinary are up 0.50%.
European markets faced another bullish session overnight. But if Brent continues to trade around $100 or less today, it could be enough to spark a rally towards the end of the week, although I expect weekend risks to limit gains.
taking money market
The currency markets had a choppy night with good range in majors. Ultimately though, despite all the commotion, the markets settled pretty close to where they started. The dollar index closed 0.10% higher at 99.75 on firming US dollar as US long-dated yields removed an inverted yield curve nerve. The dollar index has climbed 99.85 in Asia, and I expect the weekend risk-hedging to support the US dollar today. A weekly close at these levels means further gains for the next week with a target of 100.50.
The EUR/USD fell by 0.16% overnight to 1.0880, with another 0.14% down at 1.0863 in Asian trade. A weekly close at these levels would be ominous for the single currency, with multi-year support near 1.0800. Failure initially indicates more losses of 1.0600 and 1.0300. Resistance is now at 1.1200, with longer term resistance at 1.1300. Meanwhile, sterling has consolidated this week at 1.3070, but a loss of 1.3000 indicates another round of losses targeted at 1.850 and 1.2700.
USD/JPY rose 0.15% overnight to 123.97, up from 124.25 today and retraced to 123.95. If guess when, and if not if USD/JPY will now test again at 125.00. That may have to wait until next week, however, as traders do not seem too keen to risk the BOJ-spike above 124.00 for now, especially with momentum in other major currencies being muted today. That said, any downside to 123.50 should be met by a lot of eager dip buyers.
AUD/USD and NZD/USD have dropped to 0.7480 and 0.6880 overnight and the upward movement appears to have stalled. Failure of support at 0.7450 and 0.6865 would indicate a deeper correction with lots of good news in both the currencies. If the RBNZ policy decision is not a 0.50% increase, and the statement is not considered sufficient, NZD/USD faces deep downside risk next week.
Asian currencies have slumped overnight in Singapore, continuing sideways consolidation with the PBOC fixing another neutral USD/CNY. There was some weakness in regional currencies today led by THB and NTD as the US dollar strengthened across Asia. I suspect the ongoing China COVID-zero concerns, and weekend Ukraine/Russia risk hedging are cause for caution today.
Oil prices soften in Asia
Oil prices traded in a range of $5.0 overnight, but both Brent and WTI ultimately remained virtually unchanged, despite raising intraday blood pressure by highly caffeinated traders of the oil market. This is a good reason for my readers not to get caught up in any kind of short term market moves in general. Brent crude fell 0.30% to $101.40 a barrel and WTI ended 1.35% lower at $97.00.
Oil is softening in Asia today as regional buyers are absent to change the open. As China announced 24,000 new virus cases, and there seems to be no end to the Shanghai lockdown, it has scared buyers. Markets fear deep economic disruption, and by default, China has low energy consumption, affecting prices. Rent crude has slipped from $ 100.00 per barrel to fall 1.50% to $ 99.85 per barrel. WTI fell 1.50% to $95.55 per barrel.
With the release and price of the US and IEA SPR, it seems that China is driving bearish price action. Brent and WTI have fallen below my range, but I expect Brent to remain in the $100.00 to $120.00 range, with WTI in the $95.00 to $115.00 range. Only a severe virus escalation in China changes that outlook.
Gold continues to strengthen
The sideways trading of gold continued throughout the night. Despite the US dollar and US yield higher, gold still closed 0.30% higher at $1931.50 an ounce. Today, gold has become faint in Asia, which has fallen 0.10% to $ 1929.70. Gold has edged higher this week in a range of around $190.00 to $1940.00 an ounce and is showing slight inclination to react to geopolitical events or moves in US dollar or US bond yields. You can interpret this as either bullish or bearish for gold.
For my part, despite the week-long holding pattern, I believe risks are still looming on the downside for gold, especially if US yields and the US dollar continue to climb. Only a rally through $190.00 changes that outlook. A failure at $1915.00 per ounce would indicate a retest of the important support at $1880.00. A failure at $1880.00 should see a surrender of long positions, extending losses in the $1800.00 area.
