An interesting story is making the rounds this morning, suggesting that researchers at the Walter Reed Army Institute of Research have made substantive progress in developing a compound that protects against multiple coronaviruses, including Covid-19. The link to the story is here, and here, with more detail on the preliminary results here.
I have deliberately avoided being an armchair virologist or epidemiologist but having been asked non-stop this week from the world’s media as to whether we will have a “Santa Claus” equity rally this year, this seems to be as good a reason to be less Grinch, and more Santa, as any. Bloomberg ran a story into this line of research recently, including the work at Walter Reed, but this seems to be an evolution of that.
Nor have I heard of Defense One who have released the story. I would be remiss in not letting readers know about this potential, in my mind, major development in the quest for a one ring to rule them all vaccine. You should, of course, do your own research as to the veracity of the story and the news organization running it.
If the above story does have legs, the positive momentum seen in US markets overnight could pick up steam substantially. Overnight, the fast-money headline-chasing FOMO gnomes of Wall Street were hard at work as the Omicron headline ticker went quiet (relatively), and President Biden made soothing noises about boosters and a potential rerun at the build back better in January. US bond yields rose as hot money moved out of defensive foxholes, US equities powered higher along with oil, but the US dollar continued holding steady.
The buy-the-dip strategy remains irresistible to most and I fully acknowledge that it has had a higher efficacy than any vaccine over the last 18 months. However, with pre-holiday liquidity tumbling, and market direction entirely dominated by headline derived volatility, it is probably not wise to get too wedded to “the worst is over just yet" sentiment. I’ll say this again, volatility is the winner in December, not thematic direction. Catching that dip could easily be a falling knife instead.
Asian markets are taking a much more cautious approach to the schizophrenic fast-money histrionics in New York overnight. It appears that the holiday season and book closing has well and truly arrived here judging by the vol I am seeing this morning. In the same vein, the data calendar is equally as empty in the region today, with only Malaysian Inflation of note. Final reads on UK and US Q3 GDP come out this evening, but the words “Q3” and “final” make them old news.
More interesting will be official US weekly Crude Inventories, with a low print potentially extending oil’s comeback. Notably and ominously, natural gas prices hit record highs in Europe overnight as Russian gas stopped flowing through a major pipeline. Ironically, the US has natural gas coming out of its ears, with prices languishing. Europe may yet pay the price for its strategic ineptitude in Q1 if the winter turns brutal, and that’s without Omicron.
With that, I am back to watching the news ticker for clues on market direction, along with a continuing search to secure brussels sprouts here in Jakarta, as strategic a challenge as any facing the international community.
Asian equities don’t buy the US hype
US markets were on fire overnight as a slowdown in Omicron headlines irresistibly led the fast-money herd into a buy-the-dip frenzy. With pre-holiday season liquidity heightening ranges, US markets soared with the S&P 500 jumping by 1.78%. That was overshadowed by the NASDAQ, which soared 2.40% higher, as the Dow Jones gained an impressive 1.59%. The first sign that this rally is built on eggshells though is coming from US futures today. The S&P 500 and Dow Jones futures have eased by 0.10%, while NASDAQ futures have already given back 0.35%.
With no follow-through on US index futures, Asian markets have rightly adopted a wait-and-see cautious approach today, perhaps tired of the relentless whipsaw price action emanating from New York. Asian markets are mostly higher, but only very moderately so. Even the NASDAQ directional slaves of Tokyo are taking a break today, the Nikkei 225 rising just 0.10%. The South Korean KOSPI climbing just 0.15%.
In Mainland China, activity is similarly quiet, the Shanghai Composite is unchanged, while the CSI 300 is just 0.10% higher. Hong Kong has put on a better show, rising by 0.60% thus far.
Singapore has just announced a dialing back of its vaccinated travel lane policies due to Omicron, and I have a feeling we will see more in the days ahead. That is likely to weigh on sentiment with the STI now up just 0.10%. By contrast, Kuala Lumpur has risen by 0.40%, thanks to oil’s rally overnight, while Taipei is 0.20% higher. Jakarta has gained 0.25% with Bangkok rising 0.45% and Manila unchanged. Australian markets are in Christmas mode. The All Ordinaries is edging 0.20% higher, with the ASX 200 up just 0.10%.
The price action in Asia suggests that European and UK markets are unlikely to follow New York’s lead with the UK Prime Minister apparently due to announce a decision on a post-Christmas circuit breaker decision in the next 48 hours. Surging energy prices in Europe, as well as the evolution of Omicron across the Eurozone, will weigh limit gains on the continent.
US dollar holds steady
The US dollar held steady via the Dollar Index overnight, although the surge in positive sentiment in equity markets saw gains in the Canadian, Australian and New Zealand dollar risk barometers. The dollar index held steady at 96.48 and I continue waiting for a break or either 96.00 or 97.00 to signal the US dollars next directional move.
EUR/USD remains steady at 1.1270 today with risks still skewed lower thanks to Omicron and energy prices. Failure of 1.1200 signalling a test of 1.1000. Sterling has risen by 0.45% to 1.3250 as the UK PM ruled out pre-Christmas restrictions overnight. USD/JPY has edged higher to 114.10 as US bond yields rose overnight.
The three risk-sentiment amigos, the CAD, AUD, and NZD all staged modest rallies overnight, but still remain near 2021 lows. The Omicron flavor of the day will continue to dictate directional moves through the holiday period.
Asian currencies are steady as USD/CNY remains near-unchanged at 6.3725. The firm Chinese yuan and diminishing holiday season liquidity are dampening activity in the regional Asia FX space, and I expect range trading to dominate over the rest of the week.
Another wild day for oil
The headless chickens populating oil markets had another day in the sun overnight, sending oil prices rocketing higher after a lower US API Crude Inventory figure, and riding the wave of diminishing virus caution as the news tickers stayed relatively quiet. Today's official US Crude Inventories are expected to fall by 2.5 million barrels. Assuming Omicron stays away from its Bad Santa role, a lower number could be the excuse needed in the chicken run to propel prices higher once again.
OPEC+, of course, continues to lurk in the background, and their free option on quickly reigning in production to support prices from the last meeting open should continue to be a warning to overenthusiastic bears. If Brent crude heads towards $65.00 a barrel, I wouldn’t discount OPEC+ stepping in. Given that compliance is over 100%, this would process would be easy to achieve.
Brent crude rose by 2.70% to $74.00 a barrel overnight, climbing slightly to $74.1o in Asia. Brent crude has resistance at $74.40 and then $76.00 a barrel, with support is at $73.25, the 200-DMA. WTI rocketed 3.0% higher to $71.25 a barrel overnight, adding 10 cents to $71.35 in Asia. It has resistance at $73.00 a barrel, with support at $70.55, its 200-DMA. Trading in Asia is reflecting the same cautious approach seen in Asian equity markets today. Headless chickens can run in any direction randomly.
Gold is sleepless in Singapore
Gold probed $1800.00 an ounce overnight but quickly retreated as US yields rose, finishing almost unchanged at $1789.00 an ounce. Asian trading is moribund, gold edging slightly lower to $1788.50 an ounce as regional markets move into holiday mode.
Gold’s attempts to stage a meaningful recovery continue to disappoint, with traders cutting long positions at the very first sign of trouble intra-day. Gold lacks the momentum, one way or another, to sustain a directional move up or down. Likely, gold will remain a forgotten asset class and face another week of choppy range trading.
Gold has formed a rough double top around the $1815.00 region which will present a formidable barrier t$1840.00. Support lies at $1790.00, followed by $1780.00 an ounce. $1790.00 to $1815.00 could well be the range for the week.