Pandemic blues dampen Asia

Despite a frisky overnight session for US stock markets, Asia-Pacific markets just can't shake off the pandemic blues. The Covid-19 delta variant is having a global impact, with cases rising in the UK and Russia and appearing in Europe. Meanwhile, Malaysia, Thailand and most worryingly, Indonesia, continue to the battle, with three state capitals in Australia now in lockdown as well. The list goes on, but unless you are bulging with m-RNA muscles in the US, disquiet is creeping into equity markets about whether forecasts of reopening’s and recoveries need to be revisited. 

Equities aside, other asset classes remain in wait-and-see mode ahead of PMI Thursday and then Friday's US Non-Farm Payrolls which should give the street clarity on their Federal Reserve tapering thinking. Mind you, I have said that about the last two payrolls numbers as well. Still, this time around, a high print should see a tapering reaction in markets. In contrast, another soft print will probably see the transitory inflation, rates low forever, buy-everything gnomes finish the week with the upper hand.

Pandemic blues did make their presence felt overnight to a modest degree. US yields eased in sympathy with a potentially uneven global recovery, mixed in with some expectations of the total of the Biden build back better bill. That couldn't budge currency, commodity or precious metals markets, though, which were resolute in their sit-on-hands ahead of Friday mantra. Oil prices did correct lower as expected ahead of OPEC+ this week, but this looks more like a technical correction. It's nice to be right every now and then.

US markets beat their own path overnight, with technology outperforming after Facebook saw off the US FTC's antitrust lawsuit over its WhatsApp and Instagram purchases. The ensuing rally lifted it into the trillion-dollar club as markets gave it a huge "like." That lifted the rest of the tech space. Ahead of the Q2 earnings season, which will start soon, large US banks have signalled juicy dividend increases and increased buybacks after passing the Federal Reserve stress tests.

Even Bitcoin moved sideways overnight, hovering around $34,500.00 after recovering all of its Friday losses over the weekend, for reasons I know not. Canada has joined the UK and Germany in Binance bashing, but news that Cathy Wood's Ark wants to launch a crypto ETF will probably balance out regulatory threats for now. My now ropey triangle formation on Bitcoin is bounded roughly by $31,500.00 and $38,500.00 now, with the virtual Dutch tulip anchored mid-range. It could go up or down from here, depending on whether there are more buyers or sellers, but I shall only start paying attention again on a daily close below or above those two levels. 

The data calendar is once again in Asia. Malaysia released a new stimulus package overnight which has had no market reaction. Malaysia's Covid-19 trajectory and shaky politics trump any government cash. Japan Retail Sales were soft in May (MoM), and Unemployment ticked higher. Vietnam's Balance of Trade unexpectedly fell to -$1.0 billion, while GDP and Industrial Production grew, but not by as much as forecast. Both countries have been dealing with Covid-19 spikes, and the main takeaway seems to be that the virus is nibbling away at the edges of the regional recovery but has not yet chewed through the main power wire. 

China set another neutral USD/CNY fix today but added another CNY 20 billion in liquidity via the repo market. We have tier-1 PMI releases from China starting tomorrow, but I can't see anything being allowed to upset the applecart in China during the Communist Party's 100th birthday week.

Germany releases inflation data this afternoon, and the UK and US release house price data, with the ECB's Lagarde and Fed's Barkin speaking. None of it is likely to move the needle until the data calendar starts accelerating from tomorrow. Financial markets will be at the mercy of swings in intra-day sentiment, making it a day-trader's playground.

Asia-Pacific equities sag on virus nerves

Regional equity markets continue to mostly sag as pandemic concerns across the region weigh wear recovery nerves thin. In contrast, the US enjoyed a mostly upbeat session, as technology was lifted by Facebook's rally overnight. Under the gloss, though, US markets are expressing pandemic concerns and a potentially slower global recovery. There was a notable rotation from growth to value as the S&P 500 rose 0.23%, while the Nasdaq jumped 0.98%. By contrast, the Dow Jones, with a much higher beta to a recovery in the real, as opposed to the digital economy, fell by 0.44%.

In Asia, futures on all three US indices have slipped by around 0.20%, deepening the Asia malaise. The Nikkei 225 has fallen by 0.95%, while the Kospi has eased lower by 0.35%. Mainland China's Shanghai Composite is 0.75% lower, with the CSI 300 retreating by 1.0%. Hong Kong has followed suit, moving 0.70% lower. I expect China's "national team" to emerge to stabilise Mainland markets of the sell-off accelerates, especially in 100th birthday week.

Singapore has dropped by 0.75%, while Kuala Lumpur is down just 0.10%, with negativity perhaps dampened by the latest government fiscal package. However, Jakarta is bucking the trend, rising 0.70% today, as the government announced vaccinations for teenagers. Taipei remains unchanged. 

Australian markets have headed South after Perth entered a snap four-day lockdown and other states tightened restrictions. Delta-variant worries have left Australian markets on edge, with three state capitals in lockdown now. As a result, the ASX 200 has fallen by 0.50%, with the All Ordinaries falling by 0.70%.

European markets are also facing the pandemic blues and headed South yesterday along with Asia. I expect more of the same this afternoon and the divergence between the US and the rest of the world to continue over the next 48 hours.

Currency markets remain sleepless in Seattle

It was another sideways day for currency markets overnight, as the pre-Non-Farm Payrolls holding pattern continued. Despite US yields easing slightly overnight, the dollar index still eked out a slight gain, rising from 0.08% to 91.89. The majors were mostly unchanged except for AUD/USD and NZD/USD, which eased around 0.35% as risk sentiment wavered globally of delta-variant pandemic concerns. Both being proxies for Asian risk-sentiment.

The risk-averse tone has continued this morning in Asia, though as virus-disquiet grows. As a result, EUR/USD and GBP/USD have eased 0.10% to 1.1915 and 1.3870, with GBP/USD falling at 1.3900 again overnight. USD/JPY is moribund at 110.60. Overall, the DM space remains in range-trading mode, with the Antipodeans looking the most vulnerable to deteriorating virus sentiment.

The PBOC set a neutral USD/CNY fix today but added liquidity via the repo market. That has seen USD/CNY unchanged from yesterday at 6.4610 today. It is hard to see 6.4500 giving way until the data prints later this week. Stability will be the name of the game this week over the Communist Party's 100th birthday.

In the USD/Asia space, The Thai Baht, Malaysian Ringgit and Indonesian Rupiah remain under pressure and will likely remain so throughout the week. The deteriorating Covid-19 situations in each country is sapping sentiment. USD/MYR is trading at 4.1500 today and could retest 4.1650 this week. USD/THB has rallied back through 32.000, targeting 31.100. Meanwhile, the virus situation in Indonesia, arguably the most potentially problematic of all, see USD/IDR continue testing resistance near 14,500.00 today. The country looks like it will be heading into a two-week lockdown from tomorrow. A move towards 14,600.00 will almost certainly provoke a response from Bank Indonesia.

USD/Asia will remain under pressure this week, and only a massive downside miss by Friday's US employment data, leading to a softer greenback, is likely to reverse that course.

Oil has a pre-OPEC+ correction

Oil prices eased overnight as pandemic concerns, and their effect on global growth, and overbought technical indicators, saw markets lighten long positions into this week's OPEC+ meeting. Brent crude fell by 2.0% to $74.60 a barrel, and WTI fell by 1.65% to $72.75 a barrel. With Asia's pandemic nervousness increasing, oil prices have continued lower today. Brent crude and WTI have shed another 30 cents to $74.30 and $72.45 a barrel.

The previously overnight relative strength indexes (RSIs) on both contracts have now moved solidly back into neutral territory. But the fall of the Dow Jones overnight and the delta-variant negative sentiment sweeping Europe and Asia suggests that oil could correct lower still in the near term. This week's deterioration will be unlikely to stay OPEC+'s hand, and I still expect them to add 500,000 bpd to the group's production.

That may cap gains throughout the rest of the week, and soft US employment data could deepen any correction. Brent crude has support at $73.00 a barrel, and losses could reach as far as $72.00 a barrel if speculative longs rush for the exit door. WTI is sitting on support at these levels, but a deeper correction lower could extend as far as $70.00 a barrel.

Any washout of speculative long positions should be short in duration, as oil's physical fundamentals remain very supportive despite short-term virus nerves. Unless OPEC+ massively opens the taps next week, however, any sell-off will be short-lived.

Gold is anchored mid-range

Gold has adopted a spectators attitude this week, content to watch moves in other asset classes from the side-lines. A move lower by US yields was not enough to move gold higher from its mid-range holding point as it finished the session almost unchanged at $1779.00 an ounce. In Asia today, the dull range-trading continued, gold easing slightly lower to $1775.50 an ounce.

Gold remains locked in a $1760.00 to $1800.00 an ounce range, with the 100-DMA today at $1793.50 an ounce, capping gains. As ever, golds fate will be decided by other markets, notably the US Dollar's direction. The RSI has moved back into neutral territory for now. Its failure ahead of the 100-DMA on Friday suggests this week; gold will be more vulnerable to downside risk than last. 

In the bigger picture, gold needs to complete a daily close above $1800.00 an ounce or below $1760.00 an ounce to signal its next directional move. Otherwise, patience is required.