Fed Chairman Jerome Powell stayed solidly on message overnight, emphasizing once again the Fed's priority in assisting the US employment recovery while dismissing inflation concerns as transitory. The dovish tone was enough to push US Treasury yields lower, dragging the US Dollar with it while propelling stock markets higher with the S&P 500 recording a record close.

Mr Powell was helped along by US Initial Jobless Claims, which unexpectedly rose to 744,000 jobs lost. That was enough to spur a move out of cyclical stocks and into the market's 2020 comfort blanket of big tech, with the Nasdaq outperforming overnight. Although a surprise, the Initial Jobless Claims print will not be enough to derail the recovery trade based on a one-week surprise.

Asian markets are once again adopting a more cautious posture today. Geopolitics is never far from the surface, even if it is often lost in the global recovery noise. The US overnight has added 7 Chinese supercomputing firms to its export black-list, which is likely to weigh on Mainland equity sentiment today.

The ongoing AstraZeneca Covid-19 saga is gathering steam and the Philippines and Australia joined countries in Europe and the United Kingdom, and elsewhere in enacting age-related restrictions on its use due to blood-clotting concerns. With export restrictions in place for the vaccine by Europe and India, the knock-on effects on vaccination schedules worldwide are becoming apparent, even considering its production problems. 

That is apparent here in Indonesia, where I am sitting, and Australia and the Philippines, which rely heavily on the vaccine for future plans. China and India are also facing challenges with vaccination schedules, and although all is rosy with the United States and British poster children, the picture is cloudier elsewhere. The potentially lengthening of the global recovery and the reopening of borders on vaccine delays and safety issues seems to weigh on export-dependent markets in Asia for now.

Heading into the weekend, geopolitics, like Covid-19, to some extent, are probably not being given the due respect they should. Apart from the US actions above, China continues to ramp up activity in the Taiwan Strait and the disputed Spratly Islands just of the Philippines' coast. Reuters reports that Russian amphibious landing and artillery warships have entered the Black Sea (bordered by Ukraine) for "exercises." Taken in conjunction with Russia's build-up of land forces on Ukraine's Eastern border, Ukraine is rightly nervous, and so should Europe be. Holding gold into the weekend may be no bad thing.

In Asia today, China has just released March CPI and PPO YoY. Both data points coming in above market expectations at 0.40% and 4.40%, respectively. Fuel and transportation costs lifted the CPI number, while factory gate prices, raw materials, and energy lifted the PPI. The rise in oil prices and raw materials is clearly feeding into the China value chain now and points to an upward trajectory globally as a result. That appears to be weighing, along with geopolitics, on Mainland markets today as fears increase that the PBOC will tighten monetary conditions.

In Australia, the RBA Stability Review noted that it was closely watching surging property prices, although it felt bank lending standards remain robust. With New Zealand returning to pre-Covid macroprudential standards and enacting new property price control measures, concerns are rising that Australia could follow suit. Unsurprisingly, bank stocks are weighing on Australian stock markets today even as the resource sector surges.

The rest of the day's calendar through Asia and Europe is second-tier. The US releases PPI and Core PPI data this evening. Although both will jump higher, and on-message Jerome Powell and risk-seeking sentiment mean an abrupt change of direction is unlikely into the week's end. Only blowout numbers to the upside, and surging US Treasury yields would do that. Conversely, lower prints are like to turbocharge the FOMO buy-everything gnomes into the session's close.

Asian equities are subdued

 Asian markets are mostly lower this morning despite a positive US session. Growth stocks, led by technology, powered higher after the Powell speech at the expense of cyclicals in New York as US yields fell. The S&P 500 rose 0.42%, with the Nasdaq powering 1.03% higher. Meanwhile, the heavily cyclical Dow Jones could only manage a 0.17% gain. US futures are only marginally higher in Asia.

Given cyclicals underperformed overnight in New York, it is no surprise that ASEAN markets are mixed today; however, several other factors are also at work. The Nikkei 225 is up just 0.22%, with gains also muted by an impending expansion of Covid-19 restrictions, likely to be announced today. Meanwhile, the Kospi has fallen 0.15%.

China markets are under pressure after the US added seven more Mainland technology companies to its export black-list. The higher CPI and PPI prints are increasing PBOC tightening fears. The Shanghai Composite has fallen 0.95%, with the CSI 300 falling 0.50%. The sombre mood has spread to Hong Kong, with the Hang Seng falling 0.90%.

Singapore has fallen 0.15%, with Taiwan unchanged, Kuala Lumpur rising 0.30% and Jakarta climbing 0.50%. Bangkok is unchanged while Manilla is closed for a holiday.

Australian markets are retreating, led by large banks despite resource companies outperforming. The Australian Government announced age-related restrictions on the AstraZeneca vaccine overnight, adding to their vaccination programme woes as Europe and India withhold exports of the above. Additionally, markets were spooked by the RBA Financial Stability Review, which noted that the central bank was monitoring property prices closely. The ASX 200 is down 0.30%, with the All Ordinaries down 0.20%, although both have clawed back some of their earlier losses.

Wall Street is unlikely to be fazed by the Asia price action, which has been, admittedly, quite cautious all week. European equities will probably track Wall Street higher than Asia, benefitting from their newfound role as a recovery play and with lots of bad news seemingly baked into prices already.

The US dollar retreat continues

The US Dollar retreat deepened overnight, with its correlation to US Treasury yields laid bare for all to see as they also tracked lower after Jerome Powell's dovish speech. The dollar index fell 0.38% to 92.06, just above its 92.00 pivot point as US markets continued their risk-seeking momentum. A close below 92.00 tonight likely signals the US Dollar rally has finished for now, with further losses possible to 91.00 next week. Only a sharp rise in US yields will trigger an about-face.

Developed market currencies were mostly higher, with the British Pound treading water at 1.3735 on AstraZeneca concerns. EUR/USD rose by 0.37% to 1.1925, having broken out of its descending wedge on Tuesday. The cross now targets 1.2000 into next week. The fall in US yields saw USD/JPY fall 0.55% to 109.00 as interest rate differentials narrowed. USD/JPY's overnight low at 109.00 is initial support, and a weekly close below signals a test of major support around 108.50 next week. As usual, the major currencies are almost unchanged in Asia today.

Both the Australian and New Zealand Dollar rallied overnight as global risk barometers. AUD/USD rose 0.50% to 0.7650 and NZD/USD rose 0.60% to 0.7650, although both have fallen 15 points in Asia. Despite the noise of the week, both currencies remain confined within well-denoted ranges. AUD/USD between 0.7600 and 07700. NZD/USD between 0.7000 and 0.7070 with critical resistance at 0.7100. I will take upside breakouts by either or both as a final signal that the broader US Dollar rally has been completed for now. 

Asian currencies remain in a holding pattern as the PBOC keeps the daily fixing hovering on each side of 6.5500 this week. Notable exceptions are Indonesia and India. USD/IDR has risen above 14,500.00 again after President Jokowi said he favoured adding employment to the central bank's overall mandate. It has been interpreted as eroding central bank independence and reducing their room to tighten monetary policy in the future and has fed into a weaker currency. 

India's Covid-19 issues and the RBI announcement of a formal QE programme saw the Indian Rupee once again fall sharply yesterday. USD/INR rose to just shy of 75.00 yesterday before abruptly changing direction and retreating to 74.573, an impressive move. The price action suggests that the RBI intervened, and I expect them to continue doing so, with the INR likely to continue to remain fragile.

A weaker US Dollar and falling Treasury yields have taken the heat of EM currencies in the bigger picture, although, as ever, there will be localised exceptions.

Oil prices remain steady

Oil had another sideways day in a narrow range overnight, with the opposing forces of higher production versus a weaker US Dollar seemingly balancing each other out for now. Brent crude rose 0.67% to $63.30 a barrel, and WTI rose 0.40% to $59.75 a barrel. Both contracts have eased by 20 cents a barrel in Asia in directionless trading.

Oil markets continue to monitor developments in the US/Iran talks in Vienna. Although the chances of a breakthrough are low, any signs that one may occur is likely to send oil lower in the short term.

In the bigger picture, Brent crude continues to trade noisily between $60.00 and $65.00 a barrel, and WTI's between $57.50 and $62.50 a barrel. Intraday sentiment and flows continue to dominate proceedings. A breakout of those wider ranges will signal oil's next directional move. 

Gold roars higher on lower US yields

Gold markets powered higher overnight after a dovish Jerome Powell and poor US Initial Jobless Claims sent both US yields and the US Dollar lower. Gold rose 1.05% to $1755.50 an ounce, although it has retreated modestly to $1753.50 an ounce in Asia on profit-taking flows.

Gold is now poised to test its 50.0% Fibonacci at $1760.00 an ounce, which is also a multi-week pivot point. A daily close above that level tonight signals that the 50.0/61.80% Fibonacci retracement box has held and that a longer-term low in gold prices is now in place. All things being equal, that should signal further gains above $1800.00 an ounce next week.

Gold has initial support at $1733.00 an ounce, followed by $1720.00 an ounce. Resistance is nearby at $1760.00 an ounce, followed by $1780.00 and $1800.00 an ounce.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

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