Volatility remains muted

Financial markets remained eerily muted overnight, trading mostly sideways and leaving me asking myself, "is September the new May?" A lack of tier-1 data is partially to blame as the street remains in limbo, torn over uncertainty about the Fed taper and its implications to juicy valuations everywhere, the delta-variant, inflation, uninspiring data from China, and whether the global recovery is becoming more k-shaped than K-SHAPED. 

That's not to say there hasn't been intra-day volatility. Another Fed official added their name to the tapering roster overnight, pushing the US Dollar higher, although the rally quickly fizzled out. Oil prices moved higher as OPEC raised 2022 consumption forecasts above pre-pandemic levels. Stocks in the US finally attracted some dip-buyers after several slightly negative sessions.

If everything else is quiet, we can always rely on cryptos to provide some amusement. Litecoin, (whatever that is) spiked over 30% to nearly $240.00 of fiat currency after a fake press release saying Walmart would accept it. Walmart quickly denied any such thing leaving a tier-1 news outlet or two with digital egg on their face and some questions to be asked by management. Litecoin dragged the rest of the crypto "asset" space higher on the news before the pump and dump, I mean rally, because digital assets are becoming mainstream, don't you know, fizzled out, and Bitcoin tanked. Mainstream financial assets, um....check, 30.0% intra-day move up and down, errrrrrrrrrrr check. 

Most eyes appear to be on the US inflation data tonight, with Headline Inflation MOM expected at 0.40% and Core Inflation MoM at 0.30%. Nobody was talking about tapering and inflation after the disastrous Non-Farm Payrolls two weeks ago; the fact that markets suddenly have a bee in their bonnet now probably tells you how quiet it is. With markets back on inflation and tapering watch, the path of least resistance is higher prints from the data. In that circumstance, I expect the US Dollar to spike, US yields to rise, and equities to probably have a bad day at the office. But given the lack of momentum anywhere at the moment, I'm not sure it will last. The biggest casualty could be gold, which has been hovering on borrowed time at $1800.00 an ounce. Ironic, really, when it's supposed to be an inflation hedge. I have long since concluded that gold does hedge inflation, but only Latin American-style inflation. We're not there yet.

Today in Asia, Australian NAB Business Confidence tumbled to -5, showing the effects of the extended lockdowns in Q3 in New South Wales and Victoria. However, the House Price Index leapt by 6.70% QoQ for Q2. The result is a nil-all draw for financial markets, and I wouldn't bet against a rapid rebound once restrictions are eased in the lucky country.

I noted with amusement that the Australian Prime Minister will once again be escaping from Alcatraz/Australia next week, on another junket, I mean essential diplomatic mission, to the United States to meet President Biden. That is despite locking his overseas-based citizens out of the country and locking his domiciled citizens in the country. Hopefully, no large forest fires break out in Australia while he is away, explaining to Joe the nature of his unhealthily close bromance with former President Trump, or another extended holiday to Hawaii beckons. Keep leading from the front ScoMo. All will probably be forgiven if you sign off Quade Cooper's citizenship application before you go.

Japan's Industrial Production and China FDI (YTD) are released this afternoon. Neither is likely to seriously move the dial with Japan markets myopically focused on post-Suga stimulus hopes and China releasing a bumper set of data tomorrow. That will be Asia's highlight for the week. India WPI could see some jitters in onshore equities if the print comes in well north of 11.0%.

Whether US inflation impacts or not, we will probably see this price action continue until next week's FOMC outlook. I would be happy to be wrong, though.

Asian equities track Wall Street higher

US equities broke their modest losing streak last night, as the dip-buyers could wait no longer. US yields eased slightly, and buyers pushed the S&P 500 0.23% higher and the Dow Jones 0.77% higher. Fears that the Democrats will raise corporate taxes to 25% seemed to weigh on the tech-heavy Nasdaq, which finished 0.07% lower. Given that big-tech doesn't pay a lot of tax relatively anyway, and that saying and actually passing tax rises in the US are two totally different beasts, the negativity around the Nasdaq is probably overdone. Apple is releasing some new iPhones tonight, which should be enough to spark a tech rally.

In Asia, equities are mostly higher, except China, where Evergrande worries and the further disemboweling of Ant Financial yesterday continue to weigh on China markets. The Shanghai Composite has fallen by 0.20%, and the CSI 300 and Hang Seng are lower by 0.30%.

Elsewhere, the picture is brighter. The Nikkei 225 is 0.40% higher, with chip-makers boosting the Kospi by 0.80%. Singapore has climbed 0.35%, while Taiwan is hovering just above unchanged. Kuala Lumpur bucks the trend, falling 0.30% today, but Jakarta has risen by 0.40%. In Australia, an overnight tumble by iron ore prices seems to be weighing on local markets, the ASX 200 and All Ordinaries falling by 0.20%.

European markets shook of Asia's nerves yesterday to open higher, and I expect they will do so again this afternoon, given the mostly positive, if quiet, Asia session.

The US dollar remains firm

The US Dollar spiked higher intra-day overnight after another Fed official joined the tapering bandwagon. The rally soon faded, though, as US yields moved slightly lower. The dollar index finished almost unchanged at 92.61, despite testing 92.90 during the session. It is unchanged in yet another wait-and-see Asian session. 

It was much the same across the other major currencies, which fell versus the greenback intraday before rallying to finish almost unchanged for the day in New York. EUR/USD is trading at 1.1815, midway between support resistance at 1.1750 and 1.1850. GBP/USD is at 1.3845, midway between support resistance at 1.3800 and 1.3900. USD/JPY did not move overnight and is at 100.07 this morning, while markets wait for a break of its multi-week 109.50/110/50 range. AUD/USD and NZD/USD had a quiet overnight session before easing by 0.20% in Asia to 0.7250 and 0.7110, respectively. Higher US inflation tonight could send both sharply lower with support at 0.7340 and 0.7080 the levels to watch.

Except for the Singapore Dollar, AsiaFX retreated modestly overnight, with the US Dollar holding onto those gains. Notably, USD/MYR has risen to 4.1475 this morning, with the Ringgit receiving no boost from higher oil prices. The new government honeymoon could be over as soon as it started. Especially as the new Prime Minister looks set to appoint former PM Najib Razak as an economic advisor. Seriously, you couldn't make this up. 

G-10 and Asian currencies look set to remain slightly offered versus the US Dollar until the US inflation data this evening as markets remain torn between inflation nerves and tapering and peak recovery. The data may help to answer some of those questions, but in all likelihood, we are likely to see US Dollar strength modestly continue into next week’s FOMC.

OPEC sends oil higher

Oil prices rose overnight after OPEC's monthly market report raised consumption forecasts in 2022 to above pre-pandemic levels, although consumption in 2021 was likely to take a delta hit. Oil prices were assisted by the arrival of Tropical Storm Nicholas in Louisiana and Texas, potentially delaying the return of post-Ida production.

Brent crude finished the day 1.07% higher at $73.65, and WTI climbed 1.50% to $70.60 a barrel. In Asia, oil has risen once again, with both contracts 0.40% higher and testing the overnight highs at $73.90 and $70.90 a barrel, respectively.

I do not rule out this as a false dawn for oil, which has been locked in a noisy range for two weeks. However, a rise through $74.00 by Brent crude opens further rallies targeting $76.00 a barrel. Otherwise, Brent risks retreating all the way back to $72.00 and possibly, $71.00 a barrel. Similarly, a rally by WTI through $71.00 opens further gains to $72.00 initially. Otherwise, it risks falling back to $69.60 a barrel.

Gold continues its sideways range

Gold rose slightly overnight in another directionless session, climbing 0.33% to $1793.50 before easing to $1791.80 an ounce in another lethargic Asian session. Gold remains locked in a narrow $1780.00 to $1800.00 an ounce range, and maybe US inflation data this evening will answer some questions.

Gold's price action continues to be seriously underwhelming, unable to rally when the US Dollar falls and moving lower when it rises. Gold needs to recapture and hold above $1800.00 an ounce this week, preferable $1830.00, to soothe the nerves of nervous long-positions. 

The balance of probabilities is increasing, though, that gold has more downside ahead. A daily close below $1780.00 opens further losses to $1750.00 an ounce. Failure of the latter could see gold fall as low as $1700.00 an ounce. Resistance in the $1800.00 to $1805.00 an ounce area continues to cap insipid attempts at recovery.