Is the buy everything trade stalling?

Friday had a buy the rumour, sell the fact look about it as US Non-Farm Payrolls data outperformed, but markets still retreated anyway. Jobs rose by 1.76 million, much better than the 1.5 million expected. However, the v-shaped recovery gnomes of Wall Street decided that wasn't close enough to last month’s 4.8 million and headed to the exit door. Financial markets can be a tough audience to please sometimes.

Adding to the woes was the breakdown in talks between the Republicans and Democrats over the follow-up stimulus package. Covid-19 continues to rampage across the US, stoking fears of a double-dip in America's recovery. Coming hard after the banning to WeChat and TikTok by the President, investors seemed more focused on reducing risk into the weekend, concerned by the potential scale of Chinese retaliation.

China has said nothing of note over the weekend regarding the matter; its attention seemingly focused on an official US government visit to Taiwan instead. Hong Kong will likely reflect the concerns today instead, being a listing venue for Tencent. Hong Kong's police have also arrested several citizens under the new security law this morning, including a prominent media magnate. Hong Kong stocks are likely to be unloved in the first part of the week.

Markets, though, appear to be stalling across the spectrum of instruments, notably amongst the major currencies. But precious metals, oil and even stock markets are all displaying topping formations on their charts, and a fall in momentum. I will stick my neck out here and suggest that this week could be one of correction, with the potential to develop into a deep stall. 

As I have written previously, stalling an aircraft close to the ground is the start of a very bad, and very short, day. With plenty of altitude th0ough, a stall is eminently recoverable. In the case of financial markets, they have altitude in abundance, meaning a deep stall and ensuing dive could develop with plenty of room to recover. The introduction of some two-way price action would be a welcome development after uni-directional price action on steroids since mid-March.

Before the headlines break that, "Halley calls top in stock-market rally, the end is nigh for the world," the building blocks of a continued longer-term appreciation in asset markets remain firmly in place. That is the tidal wave of free central bank money and fiscal stimulus sloshing around in the world's financial system looking for a home. Think post-GFC, but with much more velocity. US stock markets, for example, could probably retrace 30% from present levels, and still be in a bull market. The charts are suggesting though, that the V-shaped recovery buy everything trade is about to run out of airspeed. We should know by the end of this week whether I am a genius, or just another top-picker crushed below the feed of the stampeding FOMO-herd.

With the breakdown of talks in the US on Friday, President Trump passed several executive orders from the golf course on Saturday, to fill in the gap. The President extended coronavirus unemployment benefits, albeit cutting the payment from $600 per week, to $400 per week. He also suspended payroll tax and suspended student loan repayments and rental housing evictions. The effect on the market was zero because of doubts over the legality of the executive orders themselves. The reduced payments are, in fact, a Federal pay-cut package, and not a stimulus package.

Far more disturbing for the author, is a New York times story circulating this morning, that President Trump has made enquiries about having his image carved into Mount Rushmore. I look forward to the memes.

Both Japan and Singapore are on holiday today, which is likely to mute activity in Asian markets. China's inflation data has passed without incident today, with Asia's calendar, otherwise empty. We will receive a plethora of CPI and PPI data from across the globe this week. None of it will have any effect, other than to confirm that there is no inflation anywhere, unless you live in Venezuela or Zimbabwe. The data calendar is strictly B-team this week, until Thursday's US Initial Jobless Claims, and then Chinese Industrial Production, Retail Sales, and US Retail Sales on Friday.

Wednesday's Reserve Bank of New Zealand cash rate decision will be of passing interest to the region, if only to see if the RBNZ increases its quantitative easing target, or ups rhetoric on negative interest rates. None of the above will be currency supportive, with the New Zealand Dollar rally running into serious resistance in the past month.

Markets are likely to be dominated by geopolitical headlines in the first part of the week. That has started with the Hong Kong arrests this morning and a possible lawsuit by Tencent against the US Government tomorrow. China will almost certainly announce retaliatory measures this week against US companies, which may be enough to add downside momentum to my corrective prediction.

Equity markets have a mixed start

Equity markets across the Asia Pacific have had a mixed start today, with activity thinned by holidays in Japan and Singapore. That reflected the finish on Wall Street on Friday, where the S&P 500 was flat, the Nasdaq fell 0.87%, and the Dow Jones rose just 0.20%. 

Australia is outperforming today, led by bank and consumer stocks, possibly driven by the extension of full Job keeper payments by the Government as the Covid-19 situation deteriorates in Victoria. The ASX 200 and All Ordinaries have climbed 1.20% higher.

South Korea's Kospi is also 1.0% higher today, but Mainland China's Shanghai Composite is up only 0.30%, while the CSI 300 has fallen 0.50%, perhaps reflecting its more tech-heavy makeup. The US moves on Friday are clearly weighing on sentiment as the week starts. Hong Kong is also 0.30%, as Tencent shares remain under pressure.

Across several important markets, the charts are showing worrying signs of topping formations that could indicate a downward correction is near. The Nasdaq has traced a double top around 11,300, while the S&P is now approaching formidable resistance at 3,400. The Dow Jones has yet to recapture its June highs at 27,640, although having corrected in July, it's perhaps best placed for more gain of the three major indices. 

Japan's Nikkei 225 has faded at 23,000 ahead of multi-month resistance around 24,000. Australia's ASX 200 has attempted, and failed each time, to move through 6,200, where it now also faces its 200-day moving average. Both Singapore and Hong Kong made post-March highs in early July and have been fading ever since. 

The picture is one of fading momentum in the short-term, and equity markets could finally be poised to a unified downward correction for the first time since the mid-March capitulation.

The US recovers on Friday and maybe signalling a correction

With investors taking the risk of the board on Friday after the US Employment data, the US Dollar was a significant beneficiary, the dollar index surging 0.67% higher to 93.39. With the G-10 currency grouping, all exhibiting signs of downside reversals against the Dollar, a rally by the dollar index through 94.00 suggests a much stronger US Dollar correction could occur.

The EUR/USD fell 0.80% to 1.1796 on Friday and has now failed three times above 1.1900 in the past week. GBP/USD fell 0.70% to 1.3070, having failed twice last week ahead of formidable multi-month resistance at 1.3200. The Australian Dollar retreated 1.10% to 0.7160 and has formed a trip top at 0.7240. The New Zealand Dollar fell 1.35% to 0.6600 on Friday, a daily pivot point. It has failed eight times at 0.6700 and looks set for a deeper correction to 0.6500 and then 0.6400. USD/CAD and USD/CHF are displaying much the same formations, with only USD/JPY remain neutral around 106.00.

USD/CNY/CNH and USD/SGD have bottomed below 6.9400 and 1.3700, respectively. Regional Asia is yet to follow suit, but a resurgent US Dollar versus the majors would inevitably flow through to Asian currency weakness. That would leave the Indonesian Rupiah the most vulnerable to further falls. The IDR has been quietly punished by financial markets since the Bank of Indonesia "burden-sharing" with the Ministry of Finance episode, the BOI directly monetising a new government bond issuance. IDR has fallen ever since, missing out on the benefits of the US sell-off. A move higher by the US Dollar now threatens to send USD/IDR up through its 100-day moving average at 15,000.00, increasing investor disquiet about South East Asia's largest economy.

Currency markets are moribund in Asia this morning with Japan and Singapore on holiday. Overall, I will be a hero or a zero this week, as I nail my flag to US Dollar rally pole, as the major currencies all trace out corrective downside patterns versus the greenback.

Oil's price action underwhelms

Having failed to push on with upside breakouts early last week, a stronger US Dollar on Friday saw that momentum fade yet again, with both Brent crude and WTI finishing lower. Brent crude fell 1.10% to $44.65 a barrel. WTI fell 1.0% to $41.50 a barrel. 

Much has been made about growth worries etc. capping oil prices, but oil's volatility of late has been subdued. The past month's price action suggests that oil is perhaps closer to equilibrium than the market expected, with prices on both contracts effectively in a three-dollar range for the past six weeks.

If the US Dollar rally continues to gather steam, both contracts look set to edge lower to the bottom end of their medium-term ranges. Brent crude has resistance at $46.20 a barrel, last week’s high. It has support at $44.20 and then $42.50 a barrel. WTI's 200-day moving average now sits at $42.55 a barrel, with critical support at $38.50 a barrel.

Trade is directionless in Asia today with a holiday-thinned market. Oil's lack of recent volatility, maybe a blessing in disguise, potentially shielding it from the worst of any fall-out from a strong US Dollar rally this week. Overall, oil's long summer of love holiday looks set to continue for some time yet, with eyes focused on more pressing threats elsewhere.

Gold faces further potential losses

Let us be clear, the longer-term case for higher precious metals prices, as outlined ad nauseum in previous commentaries, remains unequivocally intact. As I have also stated though, gold is prone to gut-wrenching corrections along the way. The technical picture suggests that this may be one of those weeks.

On Friday, a general move higher in the US Dollar provoked a 1.40% fall by gold prices. Gold fell from a record high of $2075.00 to $2015.00 an ounce during the session, before closing at $2035.00 an ounce. Ominously, gold traced out an impressive outside reversal technical formation, that implies that deeper losses are ahead. Having been the FOMO-friend to many these past two weeks, gold has the potential to be the FOMO-fiend this week, if Dollar strength persists.

Resistance is far distant at Fridays' highs around $2,075.00 an ounce. Support lies at Friday's lows at $2015.00 an ounce with $2000.00 an ounce, a crucial psychological pivot level. A loss of the latter could see gold fall to $1960.00 an ounce, and possibly as far as $1940.00 an ounce, according to the technical picture.

One glimmer of hope is that Silver only retreated 2.0% to $28.3000 an ounce on Friday, implying that demand remains firm. Both metals though are lower in subdued Asian trade. Gold has fallen six dollars to $2028.00 an ounce. Silver has dropped 30 cents to $27.9900 an ounce. Critical support for Silver rests at $26.0000 an ounce. A failure will all but confirm the potentially emotional bearish thesis for both precious metals this week.