Asia lifted by vaccines and stimulus hopes

The weekend news front was relatively quiet unless following the saga of the US election results was your thing. Sentiment is driving markets this morning, and that is mostly positive. Covid-19 vaccinations are expected to commence in December in the US and the UK on a limited scale if Pfizer and Moderna's vaccines are granted early approval. The G-20 committed (mostly) to funding vaccines for equitable distribution around the world in 2021. In the US Treasury Secretary Mnuchin said that stimulus talks between all parties will continue. The differences between the sides is large, but it is the thought that counts.

Asia was given one dose of reality though, with the Singapore and Hong Kong travel bubble postponed for two weeks after a spike in cases in Hong Kong. It highlights the challenges the world faces reopening borders, and perhaps will spur more discussion on infection rates versus economics on a cost benefit basis. 

Over though, the light at the end of the tunnel sentiment has been mostly positive for Asian equities to start the week, and notably, the pro-cyclical Australian and New Zealand Dollars. Both countries produced robust data this morning aiding the rally. New Zealand Retail Sales rose 28% QoQ in Q3, as Kiwi's went on a post-lockdown spending spree. In Australian, November Manufacturing and Services Markit Flash PMI's rose further into expansionary territory at 56.1 and 54.9 respectively.

We will receive more Flash Manufacturing and Services PMI's for, France, Germany, the Eurozone and the United States for November later today. Manufacturing should continue to improve, although services may suffer due to Covid-19 lockdowns, but remain expansionary, or very near to it. Only a large downside disappointment, particularly in manufacturing, if likely to dampen the positive sentiment propping up the equity rally.

United Kingdom equities and the Pound are likely to outperform after Brexit trade news in the weekend. The UK press is carrying various stories that an agreement is near and could be concluded by early next week. Sterling, notably, could potentially book some substantial gains this week, if the substance of the reports is correct.

US Personal Spending and Durable Goods are released on Wednesday evening, and form the week's data highlight in a decidedly second-tier week. Both sets of data for October should show improvements but have come before the surge in Covid-19 cases sparked more movement restrictions across the United States. The November data will provide a more telling story, not just in the US, but globally. in Asia, the pace of recovery could moderate into the end of the year as the knock-on effects of Covid-19's rampage across Europe and the US make themselves felt. However, Asia should continue to outperform into 2021. 

Of more interest will be the release of the ECB's Financial Stability Review and the FOMC Minutes. Markets will be looking for confirmation that both the December ECB and FOMC meetings will be "live" with more monetary stimulus on the way. They are unlikely to be disappointed. Tomorrow, RBA Deputy Governor Debelle, and RBNZ Governor Orr are both scheduled to speak. Both are expected to remain uber-dovish, vaccines or not. The outperformance of the New Zealand Dollar could also spur some warnings/threats about its high level from Governor Orr, which might take the heat out of its rally temporarily.

Globally, trading on financial markets will be disrupted this week by the US holiday on Thursday for Thanksgiving. The silencing of the turkey's aside, much of the country will probably lock in Friday vacations and make a long weekend of it. Markets will probably concentrate on how many Americans ignore the pleas by authorities except the White House, not to travel, to limit the Covid-19 spread. If American's en masse ignore those dictates, the follow-on could impact consumer data into December for obvious reasons. 

A real-time insight into the state of the US consumer will occur on Friday, which is the Black Friday shopping day. Most of the action will happen online thanks to Covid-19. Real-time data from online and physical sales will hint at whether the renewed waves of Covid-19, the ensuing restrictions and the runoff of the first fiscal stimulus, are overriding America's need for a bargain or buying things they don't really need. With Black Friday marking the first proper day of the critical holiday shopping season, an underwhelming shopping frenzy may take more steam out of the cyclical rotation trade that started after Pfizer's vaccine announcement. 

Asian markets start the week in the green

Although Wall Street saw continued profit-taking push equities to a lower close on Friday, the US index futures have recouped much of those losses in Asia this morning. That has lifted equity markets across the region into the green to start the week. The chief drivers were that US fiscal stimulus talks are continuing and hopes that the first Covid-19 vaccines will get rapid FDA approval within the next two weeks.

The S&P 500 e-mini, Nasdaq 100 and Dow Jones futures have all risen by around 0.40% this morning. That has pushed the Nikkei 224 0.40% higher, with the South Korean Kospi leaping 1.80%. The picture is similarly rosy in China, with the Shanghai Composite and CSI 200 climbing 0.90%. However, the Hang Seng is flat as Covid-19 prompts renewed restrictions and the postponement of the Singapore Hong Kong travel bubble.

Singapore has shrugged that news of, climbing 0.70% after Q3 QoQ GDP growth surged by 9.0%. Taiwan, Manila and Jakarta are up 1.0% with Kuala Lumpur lagging, up just 0.15%. Malaysia is weighed down by the risks surrounding the impending budget vote, rising Covid-19 cases. In Australia, resource stocks have led the market higher on the global recovery story. The ASX 200 and All Ordinaries increasing 0.60%.

With sentiment and not data, pushing markets higher today, they do remain vulnerable to headline-driven corrections. They are likely to be short-term in nature though, and Europe should happily hitch itself to Asia's wagon this morning and open higher this afternoon.

Dollar index flirts with 92.20 support

The US Dollar rose on Friday as investors continued to take risk off the board into the weekend. Those gains have quickly reversed today, as emergency vaccine approval hopes, and continuing US stimulus talks and a relatively quiet White House rotated momentum back into the recovery trade. The dollar index has fallen 0.10% to 92.27, just above multi-day support in the 92.20 area. A daily close below that level sets up more Dollar losses to 91.75 initially.

Unsurprisingly, pro-cyclical currencies are flourishing in this environment. Both the Australian and New Zealand Dollars have outperformed today, rising 0.15% and 0.27% respectively at 0.7315 and 0.6950. Both now threaten resistance regions at 0.7350 and 0.7000. Of the two, the Kiwi is now very overbought, and if Governor Orr expresses his displeasure at the rise of the Kiwi tomorrow, a sharp correction is possible. That is likely to be a dip to buy, though.

In Asia, regional currencies have moved slightly higher, with the Japanese Yen and Singapore Dollar 0.10% higher, the Korean Won 0.20% higher, with the Chinese Yuan unchanged for the day, but still near recent highs. 

The regions outperformer is the Indonesian Rupiah, with USD/IDR falling to 14.152.00 today. As a chronic underperformer in 2020, its cyclical-heavy economy is well placed to outperform on a vaccine-led recovery. The government’s plan to cut the length of the national end-of-year holiday has been well received by markets this morning, if only because it means people will travel less, and perhaps limit Covid-19 cases. USD/IDR has traced multi-day resistance at 14,230.00 and could well test 14,000.00 this week. Mollifying that is that this is Indonesia, a country where hope springs eternal, but where reality has a habit of punching you in the nose.

Sterling continues to grind higher on Brexit trade agreement hopes. GBP/USD has risen 0.25% today to 1.3315. Additionally, the UK looks set to grant its own emergency approval to initial Covid-19 vaccines without waiting for the US FDA, and to being vaccinations immediately. If the reports are accurate, and a deal is concluded within the next seven days, GBP/USD should rise to its 1.3500 resistance zone, and I don't rule out a larger rally to 1.4000 shortly thereafter. 

Overall, the rosy sentiment, driven by vaccine optimism, should keep the US Dollar offered into the start of the week.

Oil continues to rise on consumption hopes

Oil shrugged off the profit-taking seen in other asset classes on Friday and continued to consolidate at the top of its November ranges. Hopes that vaccines will return the world to a semblance of normality in 2021 continue to drive consumption forecasts higher, supporting oil which has also seen a rise in speculative long futures positioning. Brent crude rose 2.05% to $45.10 barrel, and WTI rose 1.70% to $42.40 a barrel on Friday.

After initially dropping following the postponement of the Singapore and Hong Kong travel bubble, oil has quickly recouped those losses and is now in positive territory. In the greater scheme of things, the Singapore/Hong Kong bubble was never going to change the picture for international travel materially, only vaccines can do that, and they now appear closer to reality. Oil's next major risk point will be the full OPEC+ meeting next Monday. Although I am not expecting OPEC+ to change their intentions to raise production in 2021 now that Brent crude has risen to $45.00 a barrel, there is still the possibility they may choose to "help" things along a bit and surprise markets with a reduced production schedule.

In Asia, both Brent crude and WTI have firmed slightly after weathering some initial selling. Brent crude has risen 10 cents to $45.20 a barrel, but face longer-term resistance at $46.50 a barrel, while initial support lies at $44.00 a barrel. WTI has risen 10 cents to $42.50 a barrel but faces formidable monthly resistance ahead of $44.00 a barrel. Initial support lies at $41.50 a barrel, followed by the 100-day moving average (DMA) at $40.50 a barrel.

Gold continues to range

A slightly weaker US Dollar on Friday was modestly supportive of gold, which rose 0.25% to $1871.00 an ounce. In aimless trading today, gold has risen another 0.15% to $1873.50 an ounce. 

In the bigger picture, gold remains confined to a $1850.00 to $1900.00 an ounce range. Notably, gold fell through its ascending multi-month trendline support last week at $1870.00 an ounce. It attempted but failed, to reclaim that support over the past two sessions, a bearish technical development. 

The trendline now forms resistance, and today is at $1876.50 an ounce. The 50-DMA follows that at $1898.00 an ounce. The technical picture still suggests the risks for gold are skewed to the downside. If we see emergency vaccine approval in the next two weeks, those risks could magnify. A daily close below the $1845.00/$1850.00 an ounce support zone will signal deeper losses, initially targeting the 200-DMA at $1795.00 an ounce today.

Although currency debasement in 2021, and the possibility of inflation, remote as it is, are supportive long-term factors for higher gold prices, there remains a real possibility we will see a material washout of long positioning first.