With US markets closed, Asia has been left to its own devices today. Thankfully, China's August Balance of Payments data has alleviated some of the recent slowdown fears sweeping US and Asian markets after last week's procession of soft data.
In US dollar terms, China's exports and imports beat expectations handsomely. The Trade Balance climbed to $58.34 billion ($51.05 bio ep), with exports rising by 25.60% YoY (17.10% exp) and imports rising by 33.10% YoY. (17.10% exp) Although the numbers are less rosy in Yuan terms and base effects slightly flatter, the data is still impressive, coming against a background of sporadic delta variant closures, port congestion, supply chain bottlenecks and higher commodity prices. Asian equities are breathing a sigh of relief, and oil prices have moved higher post-data.
Whether the warm afterglow survives the return of US markets today is up for discussion. I was pretty surprised and more than a little suspicious of the muted reaction across asset classes after the terrible Nonfarm Payrolls. I am more than a little suspicious that many market participants were already out of the door for the long weekend. Thus, with everybody back at their desks in the US today, the price action in New York may give us a more accurate representation of the data's impact.
China's data will take the heat of the recessionary fears but may also lessen the likelihood, in investors’ minds, of the need for China to open the stimulus taps. That may limit equity gains on the Mainland today. Such are the joys of economics, outcomes are often ambiguous, and when one hand gives, the other takes away.
Up next is the Reserve Bank of Australia policy decision. Rates will remain on hold at 0.10%, but the focus will be on whether the RBA reverses its tapering plans given the ongoing state-wide lockdowns in New South Wales and Victoria. CBA's head economist wrote today that Australia faces a technical recession this quarter due to the lockdowns and that a reopening rebound will not be as vigorous as previously. I am 50/50, but a taper reversal should be enough to send local equities higher. The Australian dollar will likely be unmoved as it is held in the thrall of swings in global risk sentiment rather than local issues. However, a taper reversal will probably be a short-term negative.
Eurozone and UK Construction PMIs were softer yesterday, which sent sterling lower. Given that Europe takes August off, something I will never get my head around, I will take them with a grain of salt. The data shouldn't factor too heavily into the ECB's deliberations this week, although I expect plenty of table slapping at this meeting given the recent inflation prints. I still expect the doves to prevail on Thursday, though.
Eurozone Employment and GDP for Q2 will be of only passing interest today. Although the data should show a recovery, Q2 is an age away in 2021's world, and the GDP is the 3rd estimate. (I don't know how many they do) Germany's ZEW Economic Sentiment Index for September should hold more interest and is expected to fall from 40.4 to 30.0. A steeper fall may weigh on the euro and give the ECB Council some pause for thought.
Asian and European markets are likely to range trade today overall, awaiting the return of US markets from holiday. It will be their mode that will set the tone for the rest of the week, and it will be interesting to see if we see some catchup, post-payrolls negatively hit the US Dollar, as the theme of the day. Although with a Fed taper now delayed, the FOMO gnomes of Wall Street may arrive in a post-holiday party mood.
China data lifts the mood
With US markets closed yesterday, China's trade balance data was always going to be Asia's key inflexion point today. US futures had drifted lower, as had much of early Asia-Pacific, but the trade balance outperformance has reversed that sentiment in Asia.
Japan once again bucked the trend, the Nikkei rising strongly once again, ignoring weak household spending data. The Nikkei 225 has rallied 0.75% higher. Japanese markets are laser-focused on a new Prime Minister who will be affected to open up the fiscal spigot ahead of an election later this year. Meanwhile, the KOSPI has retreated by 0.55% with heavy selling in tech heavyweights on concerns South Korean growth is peaking.
The China trade data has lifted the Shanghai Composite 0.75% higher, with the CSI 300 rising a more sedate 0.15%. Hong Kong has also liked what it saw, the Hang Seng rising 0.50%. Singapore has reversed some early losses to be just 0.15% lower, while Taipei has fallen by 0.30%, with Kuala Lumpur up 0.10% and Jakarta flat. Bangkok has jumped 0.50% after the government expanded tourism reopening plans, with Manilla also 0.60% higher.
Australian markets appear to be reacting to iron ore futures tumbling 7.50% overnight. Although they have risen today, the ASX 200 is still down 0.25%, while the All Ordinaries remains 0.20% lower.
Overall, the China data has mitigated Asia's heavy mood at the start of the day and should be enough to send European equities higher. After that, all eyes will be on the return of US markets.
US holiday sends currencies to sleep
A US holiday was enough to send currency markets into hibernation, with the majors almost unchanged from yesterday and showing few signs of life in Asia. The dollar index rose 0.10% to 92.20, only to edge lower to 92.15 in Asia as the major currencies remain in range-trading mode.
One exception was GBP/USD, which slipped 0.20% to 1.3835, only retrace all those losses, rising to 1.3850 in Asia. As long as its 200-day moving average (DMA) holds at 1.3820, it remains on track to rally through 1.3900 on its way to retesting 1.4000 over the next week, perhaps sooner. Similarly, EUR/USD should rise through 1.1900 and retest 1.2000.
Both AUD/USD and NZD/USD appear to be consolidating before resuming their recoveries once New York returns. The RBA will be good for some short-term volatility on AUD/USD, but I can't see it falling through 0.7400, even if the RBA is uber-uber dovish.
Asian currencies are very quiet, content to consolidate their recent gains. The Malaysian Ringgit has outperformed over the past few sessions, helped by a new Prime Minister and rising oil prices. With oil rising today, USD/MYR is poised to fall from 4.1400 to 4.1200.
Of course, much of this outlook assumes that New York will return to work with an invigorated risk appetite after Fridays' Nonfarms torpedoed the Fed taper anytime soon. That should see the Commonwealths and Asian currencies continue to outperform, and the US Dollar selling is resuming. Mrs Halley "fondly" calls me a Kiwi Kentang. (Bahasa Indonesia for potato) Let's see if I am a genius tomorrow or a potato.
Oil rises on China trade data
With US markets closed, oil was sideways in Seattle. Brent crude closing almost unchanged at $72.10, and WTI closing at $68.80 a barrel. The impressive China trade data has lifted fears over the China slowdown, which has led to higher oil prices in Asia. Brent crude and WTI rising by over 0.55% to $72.65 and $69.10 a barrel, respectively.
With economic deceleration fears ebbing, oil prices in Asia should remain supported for the remainder of the session. That said, oil really needs to move higher on New York's return, or loss of momentum fears will regain the ascendancy after the V-shaped recoveries over the past week and a half.
Brent crude has resistance at $72.60, a triple-daily top, and $73.70 a barrel. A fall through the 100-DMA at $71.20 a barrel signals a retest of $70.50 and $70.00 a barrel. Things could get ugly below $70.00 a barrel. WTI has resistance at $70.50 a barrel with support at the 100-DMA at $68.70, which held. Failure could see support at $67.00 a barrel threatened.
Gold awaits New York's return
Gold remains in a holding pattern awaiting the US markets return, trading at an almost unchanged $1822.00 an ounce in a quiet Asian session.
The rally on Friday was unimpressive, despite the headline figure. The Nonfarm Payrolls miss was a ripe environment for gold to stage a powerful rally as Fed tapering fears were swept off the table. Instead, a modest rally that never threatened the formidable resistance zone lying just above between $1830.00 and $1834.00 an ounce was all gold could manage.
Although a daily close above $1835.00 an ounce clears the technical picture for a move to $1900.00, gold appears to be running out of time to do so. The price action on Friday reinforces that gold's upward momentum is waning.
Gold investors must now hope that US traders return to the office and start selling US Dollars meaningfully to keep hopes of higher prices alive. If gold falls through support bounded by the 100 and 200-DMAs at $1815.90 and $1809.60 an ounce, gold could fall to $1780.00 an ounce.