Meandering

Monday's "delta-dip" receded further into the rear-view mirror overnight, as US stocks edged higher and US yields fell after the overnight US 10-Year TIPS auction went at a record low yield. Interestingly, the US Treasury cancelled two upcoming auctions due to ample cash balances. The approaching Federal debt ceiling limit has been off the radar this week, but I suspect it will rear its bi-partisan head once again next week, mixed in with a heady tonic of infrastructure voting. For now, markets seem unconcerned about either with delta or inflation, keeping the buy-everything music playing. 

US Initial Jobless Claims also disappointed overnight but were quickly dismissed as "seasonal." I won't disagree with the US summer holiday season in full swing; pandemic be damned. The European Central Bank policy decision was also greeted with market apathy, much to my surprise. Lower for longer and QE forever was the non-unanimous decision along with the concrete 2.0% inflation target. The Japanification of monetary policy, over a decade and still going, should have been negative for the Euro versus the US Dollar. Still, it appears that markets had already priced in this monetary policy mediocrity.

Indonesia's central bank downgraded growth yesterday and also set out its stall for lower for longer, although it left its policy rate unchanged, with one eye also on the currency. Ironic, really, as my flirtation with Mr Delta here in Jakarta has left me literally temporarily one-eyed as well. Testing increased, and labs reopened fully after the weekend and Eid holiday lull, and sure enough, cases spiked to 50,000 with nearly 1,500 deaths yesterday. Along with Thailand and Malaysia, Indonesia remains on edge, and all three countries' currencies are unlikely to see any benefit from a weaker US Dollar into next week, should that occur.

Australia's Flash PMI data this morning was a mixed bag. Flash Manufacturing remained strong at 56.8, but Flash Services PMI for July cratered to 45.2, with around half the country in some sort of Covid-19 lockdown. Even if heavyweight markets in the Northern hemisphere are "delta-dismissing" at the moment, MCO's in Malaysia, PPKM's in Indonesia and state restrictions in Australia, to name but a few, mean that ASEAN markets will need a frank re-evaluation of their recovery trajectories for 2021. I expect ASEAN equity markets to underperform the recovery behemoths of New York and Europe over the next few months until we see a "Delta Dawn, what's the flower you have on?"

Japan markets are closed for a national holiday once again, which is likely to reduce liquidity and volatility in Asia, notably in currency markets. Thailand releases its Balance of Trade with a surplus expected to hold around $1.0 billion for June. Under the cover, virus restrictions are likely to have hampered manufacturing while pushing up imports. Movement Control Order's (MCO) in Malaysia will have done the central bank a favour today by pushing June Inflation YoY back under 4.0%. A favourable outcome for all the wrong reasons. 

Similarly, Singapore Core Inflation for June YoY should hold steady at 0.80%, with Headline Inflation holding steady at 2.50% as the endless tail-chasing cycle of lockdowns/not lockdowns saps consumer demand. Singapore is streets ahead with its vaccination programme, though, and once it gets past these next two months, that should enable the City-state to be an outperformer in the ASEAN crowd into Q4.

German, French Eurozone and US Markit PMI's this afternoon will be of passing interest to financial markets in a thin data calendar week. To shake the confidence of the FOMO "delta-doubters," though, we would need to see some serious downside surprises in the headline numbers. With some impressive post-close US tech earnings results this morning, no one is going to want to spoil the end of week post-delta-dip party unless they're forced into it.

China stocks sag

Bloomberg reports that China regulators are considering severe sanctions on Didi Global Inc over its US IPO this morning. The news sent its US-listed stock sharply lower overnight in New York, and that news, part of a relentless domestic big-tech crackdown by China, appears to be weighing on early sentiment in China markets. The Shanghai Composite has opened 0.45% lower, with the CSI 300 down 0.15%, and Hong Kong, home to many China tech-heavyweight listings, falling 0.85%. 

That contrasted with a positive session in the US overnight, where a continuous stream of positive earnings results and fading delta fears saw Wall Street rise once again overnight. The S&P 500 gained 0.20%, with the Nasdaq climbing 0.36% and the Dow Jones adding just 0.07%. Beneath the bonnet, though, the quiet rotation back into more defensive 2020 darlings at the expense of growth appears to be continuing.

Impressive results from Twitter and Snap after the market close sent the Nasdaq and S&P 500 futures 0.35% higher, and that appears to be offsetting the China tech-scare in markets ex-China this morning. Japan is closed, but the Kospi has risen by 0.15%, with Taipei 0.35% higher and Singapore and Kuala Lumpur edging 0.15% to the green. 

Australian markets are also modestly higher despite an extension to the Sydney lockdown and New Zealand just announcing a suspension to the Australia New Zealand travel bubble. It seems that news was expected, and both the ASX 200 and All Ordinaries remain 0.15% higher for the session.

Asian markets look content to ride out Friday with a no-further-bad-news-is-good news rally. That same theme should ensure Europe and US markets finish in much the same manner.

Currency markets consolidate

The ECB policy meeting failed to shake up volatility in currency markets, something I got badly wrong yesterday. With the meeting passing without incident, currency markets settled into a directionless range-trading session, with the US Dollar content to continue consolidating recent gains. With no direction from North America, and a Japan holiday reducing liquidity anyway, the Asian session is off to an equally quiet start which will likely be the tone for the remainder of the Asian day.

EUR/USD is at 1.1775 this morning, not far away from support at 1.1750. A dovish ECB still leave the single currency with a downside bias with failure of 1.1750 signally a retest of 1.1700. Only a rally through resistance at 1.1850 will change the outlook. GBP/USD closed above its 200-day moving average at 1.3708 overnight, continuing its quite impressive recovery. GBP/USD is at 1.3770 today, awaiting a move through either 1.3600 or 1.3900 to signal its next medium-term directional move. The reopening doom and gloom headlines have dimmed as the week has gone on, suggesting that the upside may be the path of least resistance for Her Majesty's British Pound.

The US dollar index was almost unchanged overnight at 92.85, roughly in the middle of a broader 92.50 to 93.20 trading range for the week. Inflows into the US bond and equity markets continue to support the greenback on dips while at the same time, it lacks the conviction/momentum to test 93.20 convincingly. The data calendar and Capitol Hill risk tighten up considerably next week, and the US Dollar direction should resolve one way or the other. In the meantime, patience is required.

USD/CNY remains marooned between 6.4500 and 6.4900, with the 100-DMA today at 6.4720, acting as an intra-day pivot of late for day traders. The PBOC seems content with the level of the Yuan at these levels, having nipped the appreciation trend in the bud for now. Both the Malaysian Ringgit and Indonesian Rupiah made sharp gains overnight, which I attribute to yet another spike in oil prices. USD/THB, though, remained locked at its recent highs, trading at 32.93 today. As an unofficial index of the delta variant in Asia, I believe that the overnight rallies by MYR and IDR are temporary and that their downtrend will resume sooner rather than later, along with the THB.

Oil rallies once again

The fast money FOMO gnomes were out in force once again in oil markets overnight, pushing prices higher despite nothing really materially changing in the world overnight. Gone is the "delta-dismay" of Monday's speculative-long capitulation, and in with the fear of missing out on the next rally. As I have stated previously, I felt any sell-off would be short in duration, but I will admit oil's comeback has surprised me and highlights that tail-chasing fast money is what is driving oil prices right now.

Overnight, Brent crude rose 1.95% to $73.60 a barrel, with WTI leaping by 2.15% to $71.65 a barrel. Both contracts have now recouped all of their losses for the week. The price action has left Asian markets somewhat bemused, with all thoughts of bargain hunting consigned to the rubbish bin. Therefore, regional markets are choosing to sit on their hands today, leaving both Brent and WTI unchanged in early trading.

The massive ranges this week has left the chart picture a bit of a mess. Both Brent and WTI are now effectively unchanged for the week, and on that basis, I believe the best of the rallies are over for now in the short term. 

Brent crude has resistance nearby at $74.00 a barrel and WTI at $72.00 a barrel. I believe as we run into the end of the week, both contracts will struggle to sustain gains above those levels unless we get a news headline surprise. Brent crude has immediate support at $72.00 a barrel, while WTI's support is at $70.00 a barrel.

Gold tests support once again

Gold once again probed downside support overnight, but the 100-DMA held, and gold ended a non-descript session 0.17% higher at $1806.50 an ounce. In equally directionless Asian trading, gold has faded slightly to $1803.50 an ounce this morning.

The 100-DMA, today at $1796.25 an ounce, continues to provide quite solid support and has comfortably blocked any deeper sell-offs over the past two weeks. However, I note that the rallies are getting ever shallower with gold now, tracing out a series of lower highs over this week. That, I believe, is signalling those risks are increasing for a deeper gold sell-off, as the US Dollar stays firm and even as US bond yields fall, which should be supportive. 

A daily close below $1790.00 an ounce will signal a deeper correction that could reach as far as support at $1750.00 an ounce, especially if stop-loss sellers are forced to the market. Above, gold has resistance at $1810.00 an ounce, followed by the 200-DMA at $1824.00 an ounce. Only a daily close above the 200-DMA will shift the bearish outlook.