Friday's gigantic Non-Farm Payrolls miss, payrolls rose by only 266,000 jobs, is quickly being dismissed as an anomaly. The signs were already there in New York, with US 10-year yields plunging to 1.45% before rising back to 1.57% at the close. Stock markets rallied while the US Dollar was pummelled. All very much global recovery behaviour with a dash of nagging inflation doubts.
Asian stock markets are off to a positive start today, but the commodity space is the real eye-opener. Shanghai Steel Rebar futures opened 10% higher and are now still 6.0% higher. Iron ore futures are 7.70% higher, while copper has gained 2.0%. So, while the US Non-Farm Payrolls post-mortems continue, as far as Asia is concerned, the global recovery is Thunderbirds Are Go.
Another mover this morning is the British Pound after the results of the Scottish election have started rolling in. GBP/USD has risen 45 points to 1.4030 this morning, with Sterling outperforming on the crosses as well, notably GBP/JPY, which is up 0.60% to 152.70. Although the Scottish National Party looks to have won the election, it appears it will not command an outright majority and another coalition government is on the way. Markets have decided that this reduces the risk of Scotland asking for another independence referendum. The whole situation is disingenuous, though, as Westminster has to agree to a referendum, and I can't see them feeling the need to do so. Nevertheless, the market thinks this is a reason to buy Sterling, and I'll not stand in the way of that.
The other notable weekend news was the shutdown of the US Colonial Pipeline by hackers demanding a ransom, probably in Bitcoin. That has pushed oil prices slightly higher today, but the real effect will be felt in refined products if the shutdown is drawn out. RBOB Gasoline futures spiked higher this morning in electronic trading, but have since retreated, although they remain 2.0% higher than Friday. The situation is only bullish for oil at the periphery, as this is not an oil supply problem; it is a refined products issue.
Cryptocurrencies had another emotional weekend, thanks to Elon Musk. Dogecoin, or as I call it, Pumpanddumpandpumpcoin, enjoyed a 40% range. Having risen on Friday after a Musk tweet with a dog, it fell when he called Dogecoin a hustle in a skit on Saturday Night Live, which he hustled. Mr Musk announced he was sending a satellite to the moon, much like Pumpanddumpandpumpcoin’s price action, next year in another tweet today. Dogecoin will likely follow suit.
On reflection, the juvenile behaviour of a group of billionaires and washed-up 70's rock stars in leading an unwitting army of desperate retail "investors" to a get rich quick Dutch tulip garden is sad to see. Someone bought Dogecoin before the SNL programme and was nursing 40% losses after it aired. On the other hand, if you are stupid enough to stake a goodly portion of your net wealth on juvenile tweets and a comedy show, you probably deserve everything you get. I am not sure how carnage, anarchy and group-think amongst investors, the man on the street, financial institutions and the financial press has to occur in the crypto space before the world's regulators step in and stop the madness. I can only hope it will be sooner rather than later.
Bitcoin, meanwhile, rose to $58.800.00 of fiat US Dollar currency backed by the taxpayer revenue of the United States. The technical picture suggests the correction lower has run its course for now in a buy-everything world. A rally through $60,000.00 will signal a test of the all-time highs around $64,900.00, and possibly more if the US Dollar stays weak and because of the announcement that a prominent investment bank has established a cryptocurrency trading team. No doubt there will be more inanity from "institutional experts" that this is another sign of Bitcoin and crypto's ascent as "mainstream financial assets."
The smell of easy money always attracts an army of wannabee easy money consumers. If cryptocurrencies were a pile of freshly laid steaming dung in a cow paddock, it would attract many flies, some of which may also be fans of SNL. But it's still dung. And when it dries out, even most of the flies get bored.
Financial dinosaur moment over, it’s time to look at the economic calendar in Asia today. After the frenzy of last week, the pickings are bare. South Korean Private Bank Lending rose 3.0% YoY in March, a neutral result. But Australia delivered yet another healthy crop of data. NAB Business Confidence in April rose to 26, which Final March Retail Sales rose 1.30%, both handsomely outperforming. Looking at the data today and the ballistic rises in commodity prices this morning, the Lucky Country seems set to remain very lucky.
Malaysian Construction Output is set to remain negative this afternoon. Still, more attention will be focused on the government announcement of quite aggressive movement restrictions in parts of the country for the next fortnight. That encompasses the Eid migration, like Indonesia, and is a vigorous attempt to control the spread of Covid-19. Like Singapore, Japan, Thailand, and most of the peripheral ASEAN, Malaysia is dealing with a new wave of surging cases, with only Indonesia seemingly dodging the bullet. If the reaction in Singapore markets is anything to go by vis-a-vis new restrictions, Malaysian equities will struggle ahead of the end of Ramadan holidays this week.
From a data perspective, Asia is likely to be more focused on Inflation and New Loan data from China and US inflation data, all due this week. The ECB also meets, but this is officially a Non-Monetary Policy Meeting. The economic calendar has a more benign look about it this week after the fireworks of last. Meaning financial markets will be swept along in the ebbs and flows of global recovery sentiment.
Asian equities sprint out of the gate
Asia is off to a positive start today, with frantic rallies in commodity prices today and a positive finish from Wall Street last week, heating up the global recovery sentiment. S&P 500, Nasdaq, and Dow Jones futures have added around 0.20% this morning, adding to their strong Friday finish, as the low-ball Non-Farm Payrolls eased taper tension from the Fed.
In Asia, the Nikkei 225 is 0.80% higher, with the Kospi leaping by 1.40%. Those jumps in iron ore and rebar prices in China today are muting the gains there, as is a firmer CNY fixing by the PBOC. Nevertheless, the Shanghai Composite has risen 0.20%, while the CSI 300 has edged 0.10% higher with the Hang Seng down 0.20%.
More community cases of Covid-19 are weighing on Singapore, with the Straits Times down 0.50%, while movement control orders have left Kuala Lumpur unchanged. Jakarta has risen 0.55%, with Taipei flat, Manila 0.85% higher and Bangkok increasing 0.50%. Australian markets are, unsurprisingly, higher today after the moves in iron ore prices this morning, and yet more positive economic data. The ASX 200 has jumped 0.90%, with the All Ordinaries rallying by 1.0%.
If equity markets could shrug off the Non-Farm Payroll shocker last Friday, it is hard to see the global recovery narrative coming under pressure this week. Although day-to-day nuances in sentiment will ebb and flow, and a thinner calendar increases headline risk, equities should broadly finish the week higher.
The US Dollar plummets after Non-Farm surprise
The US Dollar plummeted after the huge downside miss on the Non-Farm Payrolls gave weight to the lower-for-longer mantra from the Federal Reserve. After an initial bout of two-way volatility post data, markets also decided the easy money for longer was positive for asset markets and would support the global recovery. As a result, a massive rotation out of defensive US Dollar positioning occurred, with the dollar index tumbling by 0.73% to 90.22. Although slightly higher this morning, the dollar index crashed through support at 89.45 on Friday and should now target 90.00 and then 89.60 in the days ahead.
The Euro was a notable beneficiary of US Dollar largesse, EUR/USD adding 100 points to 1.2160, closing above resistance at 1.2150. It should remain bid on dips now with an initial upside target of 1.2250. Sterling was boosted by a weak US Dollar on Friday, rising 0.70% to 1.3980. Supportive results from the Scottish elections this week have seen it rally through resistance at 1.4000 to 1.4020, although it has given back some of its early Monday twilight zone gains. The break of 1.4000 is significant, and a close above 1.4000 today signals GBP/USD is set to rise to 1.4300 in the weeks ahead. The US/Japan rate differential continues to support USD/JPY, which remains in no man's land around 109.00.
The risk-sensitive Australian and New Zealand Dollars rose on Friday, with AUD/USD climbing 0.80% to 0.7850, taking out its triple top at 0.7820. Given the moves in commodity prices today, AUD/USD should now target 0.8000 this week, assuming nothing changes the recovery narrative. NZD.USD rose 0.60% to 0.7275 on Friday, probing resistance at 0.7300 this morning. A rally through 0.7300 targets further gains to 0.7450.
Asian currencies also rallied on Friday, notably the Chinese Yuan, Malaysian Ringgit, Singapore Dollar, Indonesian Rupiah and Indian Rupee, which may be being boosted by sagging imports taking pressure off the currency as fewer US Dollars are converted. The PBOC set today's USD/CNY fix at 6.4425, but USD/CNY has already diverged in OTC trading, falling to 6.4250. The strengthening of the CNY divergence from the official fixing indicates that Asian currencies remain a buy on dips versus the US Dollar as the week commences, with global recovery momentum powerfully in the ascendant.
Oil rallies on Colonial Woes
The Colonial Pipeline hack headlines over the weekend have lifted oil prices in Asia, as markets fear US supply line disruptions in refined products. Oil finished neutral on Friday; a surprising result given the moves in other asset classes.
In Asia, Brent crude and WTI are higher by 0.50% to $68.60 and $65.15 a barrel, respectively, having given back some earlier gains. Realistically, the Colonial situation is a supply issue for refined products, and not crude, and hence, gasoline futures have climbed by 2.0% in Asia. If progress is made reversing the disruption and restoring systems, oil futures could see some short-term selling pressure.
With oil finishing nearly unchanged on Friday, it would seem that oils upward momentum has waned somewhat, given the global recovery moves seen in other asset classes and a much lower US Dollar. Therefore, Colonial aside, oil may be vulnerable to some abrupt long-covering sell-offs as the week progresses.
Brent crude has resistance at $70.00 and then $71.50 a barrel. The top of its ascending triangle breakout at $68.00 is initial support, followed by $67.00 and $66.00 a barrel. WTI remains dead centre of its near two-month rising channel bounded by $62.50 and $67.00 a barrel. Only a failure of $62.50 would disrupt the longer-term bullish picture. Interim support and resistance lie at $64.00 and $66.00 a barrel, respectively.
Gold's impressive rally continues
I said some time ago that gold had traced out a cyclical low at its 61.80% Fibonacci at $1680.00 an ounce. Gold's retest and rally from that zone further cemented the case. After weeks of snail-like progress higher, gold has suddenly accelerated higher, driven by a weaker US Dollar and ebbing fears of an early Federal Reserve taper.
To be sure, gold remains acutely vulnerable to US 10-year yields suddenly moving higher. But it seems that as long as the US 10-year remains anchored between 1.50 and 1.60%, gold's upward momentum will remain unquenched.
Gold rose 0.90% to $1831.00 an ounce on Friday, having tested $1840.00 intra-session after the US payrolls data. It has again probed the upside this morning before falling back to $1832.00 an ounce. Notably, it shows no sign of breaking back below $1830.00 an ounce.
Gold has support at $1830.00 and then $1814.00 an ounce, Friday's low. It has resistance at the Friday high of $1843.50, followed by the 200-day moving average (DMA) at $1852.00 an ounce. A close above the 200-DMA would be another bullish technical development, with only a closing below the 100-DMA at $1797.00 an ounce casting doubt on the immediate bullish outlook.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.