Tangoing in Tokyo

Asian markets have started the week on a positive note, as a disappointing US Non-Farm Payrolls on Friday couldn't damp the stimulus infused enthusiasm of Wall Street. The news front was relatively quiet over the weekend as far as market impact goes, leaving the road clear for the "buy everything" business as usual crowds. The Nikkei 225 has been a star performer this morning, rising over 2.0% as investors piled in after it took out 29,000 after the open this morning, levels not seen since 1990. It remains some distance from its all-time highs around 39,000 seen in January 1989.

Chinese has released news anti-monopoly today, aimed squarely at China big-tech companies. Markets seem to have priced this in for now though, with Mainland markets slightly higher, and large Hong Kong-listed China technology companies outperforming there this morning. China's Inflation and Trade Balance data are released on Wednesday and provide the regions data highlight for the week. Today's calendar is empty save for Malaysian Industrial Production, which will be low impact.

Towards the end of the week, turnover in Asian markets will plummet with most of the region starting Lunar New Year holidays. China will be off for one week from Thursday with Taiwan beginning the day before. South Korea, Thailand, Vietnam and Singapore will follow suit with Japan also away on Thursday. India is also out on Friday next Monday; US markets will also be closed for President's Day. 

The heavy holiday schedule has hollowed out the data calendar internationally, with US CPI on Wednesday the only relief to the US stimulus story. US Core CPI is expected to print 0.20% MoM, and 1.60% YoY. Despite the Non-Farm Payrolls data being unexpectedly soft, (mostly caused by Californian shutdowns and data collection timing I suspect), the US stimulus passage and falling Covid-19 caseload may mean the January data is the nadir. 

Although Friday's data torpedoed the US Dollar squeeze plan, an above-market print for US CPI could see it return. The yield curve steepened on Friday, despite the soft data, and may do so again in the above scenario. We could yet see the return of the US Dollar short-squeeze after that, particularly if the 30-year climbs over 2.0%. Those pimped up equity valuations may look less attractive to pension fund managers in this scenario.

The Non-Farm Payrolls gave the under-pressure Euro, Australian and Canadian Dollars, and gold some much need relief on Friday. Let's see if that lasts. Until then; or not; its sit back, relax, and ride the US stimulus train, first stop being economic nirvana and the cure to all the world's problems.

Asian equities start the week on a positive note

On Friday, the weak US data could not quash Wall Street's fiscal stimulus animal spirits, which were helped along by a continuing stream of strong Q4 earnings releases. The S&P 500 rose 0.39%, the Nasdaq rose 0.57%, and the Dow Jones rose 0.28%. Futures on all three indexes have risen strongly by over 0.50% today in a Superbowl slipstream.

As noted above, the break of 29,000 today has seen the Nikkei 225 rise by over 2.0%. By contrast, the Kospi has edged 0.25% lower after Kia said it was not in electric car talks with Apple. Elsewhere though, it is a sea of green. China's markets have shrugged over new anti-monopoly rules with the Shanghai Composite rising 0.90% and the CSI 300 increasing 1.0%, helped along by the PBOC adding liquidity at this morning's repo. 

Hong Kong is 0.75% higher as Hong Kong-listed China tech perform solidly. Taipei is up 0.60%, with Bangkok up 1.0% with Singapore climbing 0.60% and Kuala Lumpur edging 0.20% higher. In Australia, the ASX 200 is 0.80% higher, with the All Ordinaries rallying by 1.0%.

With US stimulus sentiment being the one ring to rule them all, I expect European markets to follow Asia higher. Signs of the Covid-19 caseload peaking in parts of Europe and the UK will undoubtedly help things along.

US Dollar reverses course post-NFP

The US fell heavily after a weaker than expected Non-Farm Payrolls on Friday. Although the US yield curve steepened, rises in yields in the long-end were offset by falls in yields at the short-end, making it US Dollar neutral. The dollar index traced out a double top at 91.60 before falling 0.53% to 91.04, just above support at 91.00. A daily close below 91.00 probably moves the dollar index into a 90.50/90.25 range ahead of the US CPI data on Wednesday.

The US Dollar fall was a welcome relief for the embattled Euro. EUR/USD rose 0.73% to resistance at 1.2050 before retreating slightly. It has edged lower in Asia to 1.2038, but a close above 1.2050 should see the single currency grind through 1.2100 again over the next couple of sessions. The story was similar with the under-fire Australian Dollar, with AUD/USD climbing 1.02% to 0.7675 on Friday, recapturing the pivot at 0.7625. AUD/USD will likely settle into a 0.7650/0.7100 range now, and I await more precise signals from the charts for clues to its next move. 

USD/CNY moved slightly lower in Friday to 6.4665, falling again this morning to 6.4580 in line with the US Dollar weakness seen in the DM currency space. That has allowed regional Asian currencies to strengthen modestly versus the greenback this morning. The PBOC remains intent on confining USD/CNY to a 6.4000/6.5000 range through the Lunar New Year holiday period, and that should leave regional currencies volatility muted as well.

In Asia, currency markets appear to have one foot out of the door for the holidays already, with DM and regional currencies almost unchanged. Northern hemisphere markets are likely to continue pushing the US Dollar lower this afternoon, as markets remain in a Biden stimulus thrall. Only a surprise higher US CPI print on Wednesday is likely to shake that narrative this week.

Brent crude closes in on $60.00 a barrel

On Friday, a weaker US Dollar prompted more oil buying on Wall Street with Brent crude rising to within a hairsbreadth of $60.00 a barrel. With the Biden stimulus controlling the narrative on economic recovery, high OPEC+ compliance, and a weaker US Dollar, Brent crude rose 0.95% to $59.55 a barrel. Treasury Secretary Yellen's weekend remarks that the stimulus could generate full employment by next year has boosted sentiment in Asia, Brent crude advancing 0.45% to $59.75 a barrel.

The story was much the same with WTI. It rose 0.90% to %56.95 a barrel on Friday, advancing another 0.75% to $57.40 a barrel in Asia today. 

Although all seems well and lovely with the global recovery oil narrative, some short-term warning signs are lurking. Notably, the Relative Strength Indices (RSI's) on both contracts have now moved into severely overbought territory. That sends a very loud signal that oil is vulnerable to a potentially aggressive short-term correction lower, although it will not change the underlying longer-term bullish narrative. Investors should tread carefully, getting long Brent above $60.00 in the first half of this week.

Brent has resistance nearby at $60.00 a barrel, with some stop-loss and option-related buying sure to emerge if it breaks. In the medium-term, a rally through $60.00 a barrel opens up the road to $66.00 a barrel, although the short-term picture is far murkier. The nearest support for Brent crude is at $57.50 a barrel, highlighting the risks of being long at these levels at the beginning of the week.

WTI's initial resistance remains still distance at $59.65 a barrel, followed by the psychological $60.00 a barrel mark. WTI has no material support until $54.00 a barrel, and again highlights the warning signs the very overbought RSI's are sending to the short-term market. 

Gold dodges a bullet once again

On Friday, the fall in the US Dollar gave gold a get out of jail card as it rose 1.13% to $1814.20 an ounce. The price action though, still suggests a stay of execution rather than a structural change in sentiment. 

Gold has edged lower to $1810.50 an ounce in directionless Asian trading with today's intraday highs at $1818.50 an ounce forming initial resistance ahead of previous support at $1830.00 an ounce. Realistically, gold longs can only start breathing easier again if gold recaptures $1850.00 an ounce. 

Risks remain skewed to the downside and a rise in the US 10-year yield and/or US Dollar strength signals another bout of gold weakness. Thursday's lows at $1785.00 an ounce form initial support, with failure setting markets up for a test of long-term structural support at $1760.00 an ounce. All bets are off if that level fails.ers or directors.