Warren Buffet's no snowflake

I will touch on the FOMC shortly, but first I felt it was worth dwelling on the Sage of Omaha and cloud-data company, Snowflake's IPO yesterday. Mr Buffet's investment company, Berkshire Hathaway, bought $250 million worth of stock in Snowflake's IPO of $120.00 a share. They also bought another 4.04 million shares from another party at the IPO price. 

By my rough reckoning, after Snowflake's stock price rose 112% yesterday on debut, Mr Buffet made a paper profit of $820 million yesterday. Not bad for one day's work. Berkshire Hathaway also bought 250 million Apple shares in March. The rest, as they say, is history. 

Mr Buffet has been much derided for allegedly missing out on the tech boom, with many saying the world had moved on past the great man's investing style. But I think that yesterday has proven, that although Mr Buffet is now 90 years old, when it comes to tech, Wazza is no Snowflake.

I won't dwell long on the FOMC; readers will be drowning under a deluge of Fed research today. The FOMC pledged to leave rates unchanged until at least 2023, while reiterating they would let inflation overshoot their 2.0% target for some time. The FOMC also upgraded its GDP and employment forecasts but noted that part of its premise was more fiscal stimulus. Over to you, Washington DC. 

There were no real surprises in the FOMC announcements, and it was somewhat surprising that equities had a weak session, and the US Dollar strengthened slightly. That may have been due to the US yield curve steepening after the announcement. But my most likely guess to explain the price action, is that the market went into the FOMC long stocks (of course), short US Dollars and long bonds. The price movements reflected the exiting of that positioning.

Lost in the Fed noise may be another reason for the nervous day's price action. US Retail Sales in August rose by only 0.60%. Well below the rise of 1.0% expected. Although it is only one month's dataset, some disquiet over the US recovery could be setting in. With Washington DC paralysed on the stimulus front, government cheques finished, Covid-19 rampant, along with hurricanes and forest fires, the US may have seen the best of its easy wins for the incipient recovery for now. The retail sales data may be the first signs that all those factors are starting to weigh and emphasises the urgency for Capitol Hill to get its act together.

With that context in mind, this evening’s weekly Initial Jobless and Continuing Claims will assume greater importance. Recent data suggest that Initial Jobless Claims have stalled at around 900,000, and Continuing Claims at 13.5 million. The street will be looking for falls by both this evening to renew recovery momentum. A rise in the headline initial claims, in particular, could increase nerves and see equities come under pressure and the US Dollar continue to defy sceptics and rise further.

Today in Asia, we have a packed schedule with three central bank rate decisions. The Bank of Japan is first up and should announce sometime after 1100 SGT. We expect that coming so close after a new Prime Ministerial appointment, the BOJ will leave reference rates unchanged at -1.0%. Lower for longer and whatever it takes are likely to be trotted out of the central bank playbook again, but the announcement itself, should not be significantly market moving.

Taiwan will also leave rates unchanged at 1.125%, especially after the FOMC left rates untouched overnight. By far the most interesting with be Bank Indonesia's (BI) decision at 1530 SGT. With Jakarta in Covid-19 lockdown once again, and Covid-19 rampant elsewhere forcing the domestic economy in deep recession, Indonesia is crying out for more rate cuts. 

However, the direct monetisation of government debt by Bank Indonesia, and the government's underwhelming response to the Covid-19 pandemic, has sapped investor confidence. That has pushed the Indonesian Rupiah to 3-month lows, just below 15,000.00 to the dollar, forcing the central bank to intervene to cap the USD/IDR rise. With one eye on the currency, and international investor confidence, BI will almost certainly leave its reference rate unchanged at 4.0%.

The US Dollar short squeeze is continuing in Asia, with US equity index futures falling sharply this morning. Apart from weighing on local indices and supporting the greenback, it is likely to also weigh on both energy and precious metals prices in Asia. The US Jobless Claims will be the key to whether the move in Asia is merely corrective or the start of a more extended correction.

Equities move lower with US futures

Asian equity markets have been unnerved by the fall in US equity index futures this morning, with the region's markets starting the day in the red. After a mixed session overnight, with the NASDAQ falling 1.25%, the S&P 500 falling 0.46%, with only the Dow Jones in positive territory, S&P 500 e-mini, NASDAQ and Dow Jones futures are all 1.0% lower in Asian trading.

Asia is solidly in the red, with the Nikkei 225 down 0.70% and the Kospi down 1.0%. In China, the Shanghai Composite and CSI 300 are 0.70% lower, with the Hang Seng down 1.70%. Singapore has traced a slight gain of 0.30% after a recovery in Non-Oil Export data this morning. Jakarta and Kuala Lumpur are 0.30%, and the Sydney markets are 0.70% lower.

There is no particular news driving the fall in equities, notably the US ones. It appears that with the FOMC behind us and with no real surprises, profit-taking has set in as long positioning is reduced ahead of US employment data this evening. As I have stated previously, after the US equity rout last week, markets can anticipate a lot more two-way price action in the future, as opposed to the linear price action of the previous six months.

Asian stock markets will remain under pressure today unless US index futures recover some of their losses across the session.

The US Dollar rallies in Asia

The US Dollar has strengthened across the board in Asia today, as investors are unnerved by the notable falls in US equity index futures today in Asia. The US Dollar index finished unchanged at 93.10 overnight, weathering a dovish storm from the FOMC and hinting that the market went into the meeting quite short Dollars. It has raced 0.37% higher to 93.44 today as the short squeeze has picked up momentum.

With equity markets, notably US ones, have fallen, pro-cyclical currencies have borne the brunt of haven Dollar strength. EUR/USD, NZD/USD and AUD/USD are all down by 0.40% this morning, moving them back to the middle of their recent trading ranges. Notably, USD/JPY is flirting with support at 105.00 today, and a loss of the overnight low at 104.85 signals a deeper move to 104.00. 

Asian currencies are broadly weaker with CNY, THB, SGD, IDR and MYR all about 0.25% lower versus the US Dollar. The move lower by regional Asian currencies looks like a mechanical reaction to movements in the G-10 grouping though, and is not a structural change in sentiment.

With US equity index futures driving the price action across every other asset class in Asia today, it would be premature to say sentiment is turning defensive. It could all just as easily be a short-term squeeze of positioning after the FOMC. That said, investors should watch the futures mentioned above for short-term direction today.

Oil impressive overnight rally peters out

Oil prices rocketed higher overnight, as Hurricane Laura worries and a dramatic fall by 4.4 million barrels for US Crude Inventories provoked an aggressive short squeeze of speculative positioning. Brent crude rose 4.0% to $42.50 a barrel, with WTI leaping 4.7% to $40.15 a barrel. Weather and inventory related data have, for now, given oil prices a stay of execution, with both contracts up some 8.0% over the past sessions. 

The fall in US equity index futures in Asia has provoked a mechanical reaction on oil markets as the US Dollar has risen. Both Brent and WTI are 1.25% lower at $41.75 and $39.65 a barrel respectively. However, this is not an oil move; instead, it is an equity move, and the fall in Asia today should be taken with a grain of salt.

From a technical perspective, Brent crudes 100-day moving average (DMA, today at $40.60 a barrel, has successfully supported prices over the past week. Each selloff having been stopped at this point. The $40.60 level today, therefore, is a critical pivot point for Brent prices. A daily close below will signal that Brent's selloff is resuming. Resistance remains distant at Brent crude's 200-DMA at $44.00 a barrel.

WTI has also received strong technical support from its 100-DMA over the past week, today at $37.90 a barrel. Like Brent, it forms a critical pivot point now, with a daily close underneath signalling the resumption of WTI's selloff, targeting $34.50 a barrel. Overnight though, WTI stopped at its 200DMA at 40.30 a barrel. A rise through this point today signals the rally could extend to $42.00 a barrel.

None of the structural factors that pulled the rug from under oil prices has fundamentally changed in the past two days—the rally in oil prices driven by environmental and short-term supply factors in the United States. With oil around 8.0% higher over the past two sessions, further gains and bullish exuberance should be treated with caution. Short-term moves today will be dictated by US equity futures.

Gold settles back into the middle of its range

Gold prices rallied overnight but were capped by descending trendline resistance at $1965.00. After that, post the FOMC, equity weakness and US Dollar strength saw gold move lower to finish almost unchanged at $1959.50 an ounce. With Asia slavishly using US equity index futures for trading direction, gold has fallen by nearly 1.0% to $1940.00 an ounce.

Gold's fall leaves it marooned mid-range between support at $1920.00 an ounce, and the trendline resistance, today at $1963.00 an ounce. What is clear is that gold's price action is being dictated by movements in other asset classes such as currencies, and not by gold itself. As such, it lacks the momentum to challenge either side of its current trading range seriously.

Gold's trading range is narrowing though, which hints that a breakout is coming. At this stage, given the strength of support evident in the $1900.00 to $1920.00 an ounce region, the next move remains most likely to be higher, although it will find resistance at $2000.00 an ounce. Gold's longer-term bullish fundamentals are unchanged. What has changed is investor's propensity to chase prices higher for now.