Uncle Sam wants you, back at work

Uncle Sam wants you back at work it seems, with US Non-Farm Payrolls adding 4.8 million jobs overnight, yet again blowing the forecasts out of the water. Initial Jobless Claims for the week held steady at 1.4 million, and Continuing Claims for the week stayed stubbornly at around 19 million. The Non-Farms report highlighted a bounce-back in hiring in the worst affected sectors from Covid-19, such as retail. 

Although the data gave cause for cheer and relief, the financial market's reactions across asset classes were somewhat underwhelming. Stock markets closed higher, but not markedly so. The US Dollar hardly moved versus the majors. US Treasury yields rose initially but soon retreated. Oil rose modestly, and gold rallied after the data.

To some extent, the good news had been expected and had been partially priced in ahead of the data. The data itself, though, was collated before the massive increase in Covid-19 cases across the US Sunbelt States. That has undoubtedly tempered the exuberance in a shortened session overnight.

Pleasingly, some real progress appears to be being made on the Covid-19 vaccine front. By my count this week alone, Pfizer, AstraZeneca and Moderna, along with their partners, are all on the verge of commencing phase III mass trials. My anti-black swan for 2020 has been, that a vaccine appears in Q4 2020 with immediate deployment thereafter. That the US President will put his chloroquine tablets down and claim credit for it is a given. Where and who gets vaccinated first will, I suspect, show potentially the best and worst sides of humanity. 

Although the US holiday today will thin trading volumes around the world, the day is not without intrigue. Australia and China have both posted impressive data this morning, confirming that the recovery in these two key economies remains on track. China's Caixin Service 's PMI easily exceeded forecasts, climbing to 58.4. Australia, meanwhile, posted a record climb in May Retail Sales of 16.90%, albeit of a low Covis-19 base. Both data points, though, emphasise that life is returning rapidly to their respective domestic economies. That should ensure that equities in Asia, continue their rally from yesterday and end the week on a positive note.

Singapore will post Retail Sales for May at 1330. Another tepid number is expected after April's 31.70% monthly fall. Offsetting that is the fact that Singapore was in the midst of its circuit breaker lockdown at that stage. The data will be too far backwards looking to impact Singapore markets, with the Island State's domestic demand already recessionary, even before the pandemic struck.

Geopolitics remains a sticking point in the v-shaped recovery hopes of financial markets. Press reported that Hong Kong arrested 400 people under their freshly minted security law yesterday. The US Congress sent a bill to the President for signing, sanctioning Chinese officials associated with repression in Hong Kong and other parts of China. Australia and Great Britain stuck to their guns over the legality of the new Hong Kong law and made noises about accepting millions of new citizens from the SAR. China did what it always does in this situation, got upset and threatened all the above with reprisals. Doubts over whether China's signature on a document is worth the paper it was printed on aside; I suspect that the intractable differences all both sides are weighing on markets. Ahead of the weekend and a US holiday, that is tempering the v-shaped recovery optimism. 

From an Australian perspective, PM Morrison's offer yesterday to provide a haven to Hong Kong citizens continues to confuse. Selling this to the electorate would be like selling ice blocks to Eskimos. Nor does the Australian PM have a distinguished record regarding immigrants, even from developing countries like New Zealand. Hong Konger's would be well advised to read the small print carefully. Christmas Island is nowhere near Sydney.

Asia-Pacific equities are modestly higher

With the US on holiday, activity in Asia was always going to be muted today. The less than stellar rise of US indices overnight post the employment data, and China tensions, also seem to be reigning in optimism.

Nevertheless, stock markets have crept into the green across the region today, as Wall Street’s leading indices did close between 0.50% and 1.0% higher overnight. The Nikkei 225 has crept 0.25% higher today, with the Kospi up 0.50%. Mainland China is outperforming as new Covid-19 cases fall from the Beijing outbreak. The Shanghai Composite and CSI 300 are up around 0.80%.

Regionally, Hong Kong continues is money talks, protestors walk rally, the Hang Seng rising by 0.40%. Ahead of an undoubtedly uninspiring Retail Sales, Singapore has risen just 0.20%. China's retaliatory threats are weighing on Australian markets today. The ASX 200 is higher by only 0.10%, with the All Ordinaries up by 0.40%.

Asian stocks should close out the week in positive territory, but their performance thus far today, suggest that they are vulnerable to negative headlines during the session.

Currency markets are unmoved by Non-Farm Payrolls

Currency markets refused to into the US employment data euphoria overnight, preferring to sit sullenly in the corner like a teenager who has been told to get off the internet during grandma's visit. The US Dollar was barely changed as the dust settled, with the dollar index almost unchanged at 97.26.

Currency markets have refused to budge all week, even as equity markets reached higher. It appears that currency traders have rather more concerns about Covid-19 across America's sunbelt, and potential collisions with China, than the v-shaped FOMO herd populating the stock market.

The Dollar remains anchored mid-range versus the Euro, Pound, Yen, Australian and Canadian Dollars. USD/JPY though has traced out impressive technical resistance at 108.00 and could well ease back to the 106.00 regions from 107.50 this morning. The USD/CNY has ranged between 7.0500 and 7.1000 for most of June, and at 7.0650 today gives no clue that a significant Dollar move is upon us.

Monthly services PMIs are released across Europe this afternoon. They should all show an improving trend as Europe bounces back from the Covid-19 lockdowns. That should temper any corrective downward pressures on the Euro int the week's end.

The waning momentum of the rotation out Dollars trade suggests that it may yet continue to correct higher versus the majors in the near-term. Most likely, though, currency markets are preferring something more concrete to get their teeth into, before a more energetic move one way or the other. Asian markets remain very much in weekend mode today.

Oil creeps higher overnight but remains mid-range

The impressive US labour data lifted Brent crude and WTI higher overnight, although only into the upper side of their respective one-month ranges. Like currency markets, nagging doubts remain about the US economy, with the employment data collected before the spiralling Covid-19 cases in the US Sunbelt. 

Brent crude rose 1.85% to $42.90 a barrel, with monthly resistance at $44.00 a barrel, and monthly support around $40.00 a barrel. WTI rose 1.55% to $40.40 a barrel. It has resistance at $41.60 a barrel, and support at $37.00 a barrel in the greater picture. Oil is unchanged in Asian trading as markets content themselves to sit out the US holiday.

Both Brent crude and WTI have quietly ground higher this week, supported by improving economic data from around the world. Lingering Covid-19 and geopolitical concerns, however, are tempering the momentum required to challenge their monthly highs for now. Oil should remain supported this afternoon on the expected positive monthly services PMI's to be released across Europe today.

Gold finds eager buyers on dips overnight.

Gold once again probed support at $1760.00 an ounce overnight, and once again rallied strongly of that level. It raced higher from the lows, to close at 1776.00 an ounce. That was despite the impressive US employment data adding to the global recovery narrative. The hike in US treasury yields after the Non-Farms quickly ran out of steam, and partially supported gold,

Nagging doubts appear to remain in investors’ minds though, about the explosion of Covid-19 cases in the US Sunbelt states and its possible negative effect on the recovery going forward. 

Geopolitical considerations are also to the fore, with the US Congress passing its China sanctions bill. China also threatened the US, Britain and Australia with unspecified retaliation over their HK security bill stance. With a holiday in the US, and the weekend upon us, some haven directed buying of gold is evident

The price action in gold has been surprisingly constructive to me. Support is at $1760.00 an ounce with resistance is at $1790.00 an ounce. I expect those levels to contain gold into the week's end. Only a fall through $1745.00 an ounce invalidates the bullish outlook. Although the gold price action is positive, it still lacks the momentum to mount a serious challenge on $1800.00 an ounce. 

Gold is unchanged in moribund Asian trading