Damage control

New York had another tumultuous session overnight, dominated by noise from the crypto sector where (un)stable coins continued to suffer from untethering. Either the crypto noise was pushing equities down, or vice versa, I know not. Regardless, the intraday sell-offs reversed, and a semblance of calm descended on Wall Street into the close. For that we can probably thank Jerome Powell, who stuck to the 0.50% rate hike script overnight, temporarily dispelling 0.75% nerves.

Currency markets, by contrast, continue to reflect risk concerns around the world. The US Dollar pummelled Asian currencies yesterday, although USD/JPY bucked that trend by plunging 250 points to 127.50 at one stage, before finishing 1.25% lower at 128.30. Warnings from Toyota of massive material cost increases, as well as the noise elsewhere in the world, seemed to combine to create a repatriation event by Japanese investors, helped along by a market that is clearly long to the eyeballs of USD/JPY. Support at 127.00 remained safe though, and the overbought technical picture is now back to neutral. Nothing has changed with the US/Japan rate differential and USD/JPY is already heading north again in Asia today. At least that’s one dip you know you can buy.

The UK produced a very average dump of data yesterday, highlighting the stagflationary challenges the country faces. Sterling remained under pressure but was supported by EUR/GBP selling. The Euro slumped overnight, trading at 1.3085 this morning. As I have previously warned, any hint of Russia weaponising its natural gas exports to Europe is a huge negative for the single currency. European natural gas prices soared as Russia announced sanctions on some European gas importers, and the Euro duly headed south. Any escalation from here sets a move through parity by the Euro in play, and as it is, the single currency will struggle to move back above 1.0500 now.

It certainly seems as if the US Dollar and US bonds are investors' haven of choice at the moment and earning 2.50% to 3.0% to shelter your money from events in the world is certainly appealing. That is probably going to keep the US Dollar resplendent into the weekend. One casualty is the precious metals sector, where gold fell overnight, but silver and platinum took a real betting, while palladium catalytically converted itself into a near six per cent loss for the day.

The data calendar in Asia today is fairly light and the price action and as a result, it looks like Asia is trimming short US Dollar and equity positions this morning ahead of the weekend. With Bank Negara having already hiked rates this week, the reaction to Malaysian GDP later will be muted. Conversely, India’s Inflation YoY for March, released late last night, blasted through the forecast, rising to 7.79%. The RBI may need to consider another rate hike at its June meeting instead of August, although it will be loath to do so.

Some time today, we should get New Yuan Loans and M2 Money Supply for April from China. There are downside risks to both numbers from the forecasts of CNY 1.5 trillion and 9.90% respectively. Lower numbers will spark more urgency from the market around meaningful stimulus from China. The more important data will come on Monday with Industrial Production, Retail Sales, and Fixed Asset Investment for April. The covid-zero lockdowns across the country, notably in Shanghai are going to torpedo the data, it's just a question of by how much. Once again, ugly data will increase market nerves around stimulus although China equities may rally perversely, as the street prices more robust action from the central government and the PBOC.

Europe releases a swath of inflation and industrial production data this afternoon, but none from the EU heavyweights. It does culminate in Eurozone Industrial Production though, which is expected to fall by 1.0% YoY in March. A weaker number than that is going to be another headwind for Eurozone equities and the Euro itself. Intraday volatility will also be driven by developments regarding back-and-forth sanctions by Europe and Russia. None of it adds up to going home long Euros or European equities into the weekend.

Asian equities stage a technical rebound

Asia-Pacific equities are staging a relief rally today after Wall Street stabilised late in the session as Jerome Powell calmed nerves over potential 0.75% rate hikes. The rebound of cryptos and stable coins also lifted sentiment. Overnight, the S&P 500 closed just 0.13% lower, the Nasdaq rose 0.06%, and the Dow Jones fell by 0.28%. Given the losses intraday, that was an impressive finish. The rally is continuing in Asia, with futures on all three recording strong gains. S&P 500 futures are 0.70% higher, Nasdaq futures have jumped by 1.0%, and Dow futures have climbed by 0.55%.

The almost unchanged finish overnight, and the rally by US futures this morning, are lifting Asian equities. Japan’s Nikkei 225 has jumped by 2.55%, while South Korea’s Kospi has gained 1.65%. Despite Shanghai restrictions extending once again, Mainland China equities are also rising. The Shanghai Composite is 0.65% higher, with the CSI 300 rising by 0.55%. Meanwhile, the Hang Seng has rallied by 1.75%.

Regionally, Singapore is 1.40% higher, with Taipei gaining 1.25%, Kuala Lumpur 0.45%, but Jakarta has lost 0.75% after retail sales disappointed yesterday. Bangkok is closed today, while Manila has edged 0.25% higher. Australian markets are performing well, the All Ordinaries and the ASX 200 rallying by 1.30%.

Nothing has materially changed in the world from yesterday, and if anything, Russia/Europe risks are increasing. The rally today looks more like a technical rebound after a torrid week, than a structural turn in sentiment. As such, it should be taken with a grain of salt.

European markets fell overnight with the Euro as Russia announced sanctions on some European gas importers. Finland is expecting much the same treatment as soon as it announced formally it will join NATO. The weaponisation of natural gas by Russia towards Europe was always the single biggest threat to the Eurozone. With that process starting, European equities will struggle to maintain rallies, even if markets elsewhere manage to do so.

On a final note, I am heading to Singapore next week for the first time in nearly 2.5 years. It is a holiday in Singapore on Monday, my daily missive will resume on Tuesday.

Asian currencies stage a technical rebound into the weekend

The US dollar index shrugged off a plunging USD/JPY overnight, climbing an impressive 0.72% to 104.75 overnight, where it remains in Asian trading. The heavy weighting of the Euro in the index explains the dollar index rally overnight, assisted by Sterling easing as well. Having broken through 104.00, that becomes interim support, followed by 105.50. The longer-term picture still suggests that a larger move towards 120.00 remains on track. In the meantime, resistance at 105.00 is the index's first target.

EUR/USD plunged by 1.26% to 1.0380 overnight as Russia announced partial natural gas sanctions on some European importers. EUR/USD is holding its own today but the weaponisation of natural gas by Russia will ensure that any corrective rallies will struggle above 1.0500. Russia risks now bringing the support at 1.0330 into sight, and any escalation on this front is likely to see EUR/USD testing parity sooner rather than later.

Soft UK data raised stagflation and recession fears overnight, sending GBP/USD 0.40% lower to 1.2200. Heavy EUR/GBP selling saved GBP/USD from a deeper move lower but is only likely to be a temporary respite. GBP/USD has well-defined resistance at 1.2400 and risks a move below 1.2100 in the near term as the economic picture darkens. It will also eventually become guilty by association with the Euros natural gas travails.

USD/JPY plummeted to 127.50 overnight, eventually closing 1,30% lower at 128.30 as risk aversion by Japanese investors, and a very long USD/JPY market, prompted heavy Yen buying. That appears to have already run its course, with USD/JPY jumping 0.43% to 128.85 in Asia today. Support at 127.00 was never threatened, and with nothing materially changing on the US/Japan rate differential front, the risks now shift to a resumption of the rally back towards 131.00. AUD/USD and NZD/USD remain ugly on the charts but have rallied by 0.40% today to 0.6880 and 0.6250. AUD/JPY and NZD/JPY buying will be the culprit and is likely to provide only temporary support unless global risk sentiment suddenly shifts to the positive side.

Asian currencies are staging a modest rebound today after another tough overnight session, averaging around 0.20% gains although the Korean Won has jumped by 0.55%. The rebound looks corrective in nature as equities have stabilised in the last 12 hours. Given the retreat this week, today’s rally doesn’t suggest sentiment has materially changed, and with weekend risk ahead, we have probably seen the best of Asia FX gains today.

Oil markets remain volatile

Oil prices finished modestly higher overnight, after another chop-fest session which saw Brent crude and WTI fall nearly four dollars intraday. Powell’s soothing comments around 0.50% rate hikes stabilised sentiment in New York, but it is likely that the Russian natural gas sanctions on some European importers were the reason that oil rebounded. With European natural gas prices soaring, it is inevitable that some spillover into oil will occur. If anything, it should support the downside in prices for now, even if recession fears in China and Europe et al slow gains to the upside. An escalation by Russia on the sanctions front is likely to flow into oil price strength.

Brent crude rose 0.30% overnight to $107.80 a barrel, having fallen as low as $104.75 intraday. WTI finished 1.05% higher at $106.70 a barrel, having traded as low at 102.70 intraday. Asia has immediately pushed prices higher this morning, likely hedging against weekend news risk around Eastern Europe. Brent crude has added0.90% to $108.80 a barrel, and WTI has gained 0.605 to $107.30 a barrel.

Brent crude has formed trendline support at $101.70 a barrel that goes back to January 2022, while WTI has formed the same pattern at 98.85 a barrel. Resistance remains at $114.75 and $111.50 a barrel respectively. Eastern European tensions will now skew risks to the topside once again. I am sticking to my broader calls for the past two months that ​ Brent crude remains between $100.00 to $120.00, and WTI between $95.00 and $115.00 a barrel.

Gold wilts on US Dollar strength

Precious metals as a group suffered heavy losses overnight, with investors appearing to prefer the haven of the US Dollar and US bonds, with their appealing yields. The impressive US Dollar strength saw gold take out its 200-day moving average and triangle support between $1835.00 and $1836.00, finishing 1.65% lower at $1822.00 an ounce. In Asia, the modest correction by the US Dollar had seen gold creep 0.20% higher to $1825.75 an ounce.

The failure of $1835.00 now sets up a test of support at $1820.00 and then potentially $1780.00 an ounce. Failure of the latter suggests a deeper correction to $1700.00. Gold has resistance at $1835.00, $1860.00, and $1884.00 an ounce, its 100-day moving average. Only a sudden US Dollar sell-off is likely to change the bearish technical outlook. ​