Lots of noise, but no chorus

As the week rolls, thankfully, into Friday, the noise level in financial markets continues to be high enough to warrant a visit from the local council but has yet to coalesce into a chorus we can all sing and dance to. The bank and forth of the markets this week have seen a desperate frenzy of searching for news stories to justify the, at times, counterintuitive price moves.

The US Dollar's refusal to roll over, and the equity market FOMO gnome's reluctance to keep buying everything after a dovish FOMC are causing the most confusion. I suspect the answer is simpler than many would wish. The street has been very short US Dollars for months now, and long equities need no explanation. The FOMC was not enough to recharge momentum, and we are merely seeing a reduction in extended positioning, leading to noisy, but ranging markets.

Elsewhere the noise continues as well. The clock keeps going TikTok on the Byte Dance/Oracle/Wall-Mart/ Sequoia/ insert US venture-capitalist here TikTok deal. Anyone wishing to predict the final response by President Trump is a braver man than me.

Over in Europe and the United Kingdom, Covid-19's comeback is still making disturbing gains and may yet have a last 2020 finale for the region. The Brexit ice thawed slightly overnight, with some minuscule progress in trade negotiations made allegedly. Presidential Candidate Joe Biden called the UK out on its Internal Markets Bill, saying he wouldn't ink a US/UK trade deal if the bill undermined the Good Friday Agreement, which it would. Unsurprisingly, the UK Prime Minister backtracked somewhat overnight, and will allow a Parliamentary override. That won't be enough for the EU or Mr Biden, or some of the UK's lawmakers in fact. Nevertheless, Sterling continued to rally, continuing its quite remarkable one-week comeback. Whether it lasts is another matter.

The US Initial and Continuing Jobless Claims data was inconclusive overnight. It remained stubbornly high but did not deviate too far from the previous weeks, giving no strong signal one way or the other. The cross-party grouping working on a desperately needed fiscal stimulus bill appears to be making progress and has the US President's ear. No response from the Democrat and Republican congressional leaders though, means this is likely to be a story for late next week, or the week after. 

The week has been noisy, but lacking substance on the Covid-19 vaccine front as well. Plenty of pharmaceutical/biotech are in Phase-3 trials, and all are upbeat. However, not one really wants to put a date on completion or give much concrete insight into the progress of their trials. Again, I suspect this story will be one for the weeks ahead. I remain confident that my reverse Black Swan will be at least, partially successful, and some vaccines that aren't made in Russia will arrive in Q4. Producing and getting them out to the world will be the challenge. Disturbing, an ever-growing list of countries such as India and Indonesia are basing their entire Covid-19 strategy on just this happening. Let's hope I'm right and my all-in bet on black 13 comes up on the roulette table.

With the data calendar strictly second tier regionally and internationally today, I expect yet another noisy tail-chasing, but ultimately range-trading session ahead. Roll on another stay-at-home weekend.

US equity futures set Asia's direction again

Despite a weak session on Wall Street overnight, it is movements in the US equity index futures that are setting the direction for Asian stock markets today, for the second day in a row. S&P 500, NASDAQ and Dow Jones futures have crept higher by around 0.15% this morning, which has been enough to support early Asian trading. Overnight the S&P 500 fell 0.84%, the NASDAQ retreated 1.24%, and the Dow Jones fell 0.46% with Apple and Facebook notable losers.

In Asia, the Nikkei 225 and Kospi are flat, with mainland China yet to open. The Hang Seng is up 0.30%, with Singapore and Kuala Lumpur almost unchanged. The story is much the same in Sydney, with the ASX 200 and All Ordinaries virtually unchanged as well.

The fact that Asia is content to hitchhike on the aftermarket US futures suggests a lack of conviction regionally and a directionless session ahead. With most of the fallout overnight happening in the tech space, tech-light markets such as Australia and Singapore and regional South-East Asia are likely to outperform today.

US Dollar is rangebound in Asia

The US Dollar short squeeze ran out of steam overnight. After rising to 93.59 overnight, the dollar index failed ahead of its 50-day moving average (DMA) and finished the session slightly lower at 92.91. This morning, the index has edged higher to 92.96 in directionless trading. The EUR/USD tested support at 1.1750 overnight, before rising to the middle of its two-month range at 1.1845 this morning. 

Sterling's Brexit comeback marched on, as hopes continue to rise of an EU trade deal breakthrough, and movement by the government on the Internal Markets bill. The GBP/USD has rallied to 1.2950, within shouting distance of its triple-top at 1.3000. Although the rally is based on hope, rather than facts, a daily close above 1.3000 suggests further gains to 1.3200. I would argue that being long 1.3000 is a dangerous game for now.

The pro-cyclical currencies have all gained this morning, as Asian equities hold their own after the overnight US sell-off. AUD and NZD are both higher, with USD/JPY breaking support at 105.00 overnight, suggesting more Yen strength and a move lower by USD/JPY to 103.50 in the coming sessions. 

Asian currencies continue to defy the US Dollar short squeeze amongst the G-10 grouping. USD/CNY is poised to break 6.7500 on its way to 6.7000. The MYR, THB, PHP and SGD are all higher today with a lower for longer FOMC bringing developing market yield differentials back into play.

We expect this divergence to continue, with G-10 currencies ranging, albeit noisily, with regional Asian and Australasians maintaining strength on positive China data and yield differentials.

OPEC+ talks up oil prices

Oil prices rallied strongly yet again overnight, with Brent crude up almost 9.0% from its lows for the week. Overnight, the OPEC+ monitoring committee reiterated their commitment to maintaining production-cut discipline and threatened form action for recalcitrant members of the grouping.

Adverse weather events also helped the price rises in America's oil-producing and refining South. Although Hurricane Sally has passed, it has left behind extensive flooding, and more tropical depressions are forecast to be on their way. That should keep a weather floor under WTI prices in the near-term.

Brent crude rose 2.30% to $43.30 a barrel overnight, with WTI climbing through its 200-DMA, increasing 2.0% to $40.90 a barrel. Brent crude will find resistance at its 50-DMA at $43.70 a barrel, with support at $41.60, its overnight low. WTI is testing resistance at its 50-DMA today at $41.10 a barrel, with support now at its 200-DMA at $40.20 a barrel. Further resistance is at $42.00 a barrel.

With both Brent and WTI nearly 10% higher over the week, the best of the supportive news is likely now baked into spot prices. Further substantial gains from these levels will be harder going. The fundamentals weighing on prices, falling consumption outlooks, an excess or immediate supply, and the end of the US driving season remain unchanged and should reassert themselves at these levels.

Gold remains in no man's land

Gold faded in overnight trading, falling by 0.80% to $1944.00 an ounce. Like currency and equity markets, gold traders appear to have gone into the FOMC meeting long, and we are continuing to see a reduction in speculative long positioning. 

Gold has risen with equities in Asia, climbing 0.40% to $1951.50 an ounce, but in the bigger picture, remains rangebound between $1920.00 an ounce, and $1973.00 an ounce. We expect this state of affairs to continue into the weekend, with the gold off investors' radars for now, and speculative interest reduced. A further period of consolidation looks likely into next week.