Asia was treading cautiously today despite the blowout US Non-Farm Payrolls data on Friday pushing Wall Street to an impressive finish. Greater China, Australia, Europe and Canada, to name but a few, are on holiday today, and volumes are likely to be muted as a result.
Friday’s session was notable for what did not happen, then what did. The US Non-Farm Payrolls rose by 916,000 jobs, far higher than expected and broad-based across sectors. Going forward, we can expect one million-plus prints if the US vaccination efforts stay on track. US equities rose, but the rally was predominantly in the NASDAQ and not the Dow Jones. Longer-end bond yields actually fell, notably the 30-year. That dragged the US dollar lower and lifted gold impressively for the second day in a row.
The price action suggests that the shorter-term market was positioned for a blowout payrolls number, which for once, played the game. The noise will now move to “peak bond yields,” which I suggest will be premature. US Markit and ISM Services PMIs today are likely to outperform, and US PPI will be closely monitored at the end of the week, as will US Initial Jobless Claims. Any of these could spring an inflationary surprise.
The latter part of the week also sees the release of the FOMC Minutes and a speech by Fed Chair Jerome Powell. US equity markets have been schizophrenic of late, even as they consolidate at record highs. Trading has been dominated by cyclical/2020-darlings tail-chasing on a rolling daily basis. That suggests a lack of conviction at these levels, and those choppy ranges have been reflected, to some extent, in currency, bond and precious metals markets.
With the US Non-Farm data now likely to print at one million-plus per month going forward as the US reopening achieves orbital velocity, Jerome Powell will have to be very careful with his words this week. The Services and PPI data could reinforce the rising prices backdrop. Drop-in President Biden’s proposed USD2.3 trillion infrastructure package, and we have plenty of fuel to keep the inflationary fires burning. We have not seen the last of dollar strength, higher yields or cyclical rotation.
In Asia, the calendar was understandably thin today. Thailand inflation was expected to be around zero per cent MoM, and unfortunately, the Bank of Thailand doesn’t have any gas left in the policy tank with interest rates at record lows. Singapore Retail Sales should climb into positive territory MoM, but demand remains constrained, as evidenced by the recent car sales data.
Philippines inflation, like India’s, will approach 5.0% tomorrow as COVID-19 wreaks havoc on logistics and food prices even as domestic demand shrinks. Like India, the Philippines will have to just keep riding the stagflationary storm and hope that currency markets remain forgiving. The Bank of India announces its latest policy decision on Wednesday, and like the BSP, it will stay unchanged. The rupeeand the peso, along with the rupiah, remain vulnerable to more increases in US yields and US dollar strength.
China released its Caixin Services PMI today, with a rise to near 53.0 in prospect, from last month’s 51.50. China domestic air travel for this Ching Ming holiday of the past few days has apparently risen to pre-pandemic levels. That signals that domestic consumption is starting to play catch-up, even as China’s manufacturing/export facing sectors see slowing rates of monthly improvements.
A blowout Caixin will probably see the Chinese yuan firm as markets price in a greater certainty that the PBOC raises its Loan Prime Rates in late Q3. As far as China equity markets go, I will content myself to watch from the side-lines. There are far too many moving parts going on in the minds of China’s retail traders for me to decipher at the moment. Both the CSI 300and Shanghai Composite charts remain ominous.
Finally, despite the noise of the US COVID-19 vaccination efforts, the virus continues to wreak havoc elsewhere. Ontario, Canada, Metro Manila, India, Brazil remain troublesome epi-centers, and the list is not complete. But there is nothing like intelligence on the ground. My friend’s weekend walks in Paris with her petit chien, and resulting social media posts, reveal a very “liberal” interpretation of France’s latest lockdown by Parisians. No social distancing, a smattering of masks, the list goes on.
If Parisians' lack of social discipline and high entitlement quotients are indicative of Europe as a whole, Europe will remain a thorn in the side of the global recovery, and OPEC+’s hopes, for longer than the market is currently pricing. I remain long Boris, short Macron. Jeremy Clarkson would be proud.