New York had another tumultuous session yesterday, dominated by noise from the crypto sector where (un)stable coins continued to suffer from untethering. Either the crypto noise was pushing equities down, or vice versa, I know not. Regardless, the intraday sell-offs reversed, and a semblance of calm descended on Wall Street into the close. For that we can probably thank Jerome Powell, who stuck to the 0.50% rate hike script yesterday, temporarily dispelling 0.75% nerves.
Currency markets, by contrast, continue to reflect risk concerns around the world. The US dollar pummelled Asian currencies yesterday, although USD/JPY bucked that trend by plunging 250 points to 127.50 at one stage, before finishing 1.25% lower at 128.30. Warnings from Toyota (NYSE:TM) of massive material cost increases, as well as the noise elsewhere in the world, seemed to combine to create a repatriation event by Japanese investors, helped along by a market that is clearly long to the eyeballs of USD/JPY. Support at 127.00 remained safe though, and the overbought technical picture is now back to neutral. Nothing has changed with the US/Japan rate differential and USD/JPY is already heading north again in Asia today. At least that’s one dip you know you can buy.
The UK produced a very average dump of data yesterday, highlighting the stagflationary challenges the country faces. Sterling remained under pressure but was supported by EUR/GBP selling. The euro slumped yesterday, trading at 1.3085 this morning. As I have previously warned, any hint of Russia weaponising its natural gas exports to Europe is a huge negative for the single currency. European natural gas prices soared as Russia announced sanctions on some European gas importers, and the euro duly headed south. Any escalation from here sets a move through parity by the euro in play, and as it is, the single currency will struggle to move back above 1.0500 now.
It certainly seems as if the US Dollar and US bonds are investors' haven of choice at the moment and earning 2.50% to 3.0% to shelter your money from events in the world is certainly appealing. That is probably going to keep the US Dollar resplendent into the weekend. One casualty is the precious metals sector, where gold fell yesterday, but silver and platinum took a real betting, while palladium catalytically converted itself into a near six per cent loss for the day.
The data calendar in Asia today is fairly light and the price action and as a result, it looks like Asia is trimming short US Dollar and equity positions this morning ahead of the weekend. With Bank Negara having already hiked rates this week, the reaction to Malaysian GDP later will be muted. Conversely, India’s Inflation YoY for March, released yesterday, blasted through the forecast, rising to 7.79%. The RBI may need to consider another rate hike at its June meeting instead of August, although it will be loath to do so.
Some time today, we should get New Yuan Loans and M2 Money Supply for April from China. There are downside risks to both numbers from the forecasts of CNY 1.5 trillion and 9.90% respectively. Lower numbers will spark more urgency from the market around meaningful stimulus from China. The more important data will come on Monday with Industrial Production, Retail Sales, and Fixed Asset Investment for April. The Covid-zero lockdowns across the country, notably in Shanghai are going to torpedo the data, it's just a question of by how much. Once again, ugly data will increase market nerves around stimulus although China equities may rally perversely, as the street prices more robust action from the central government and the PBOC.
Europe releases a swath of inflation and industrial production data today, but none from the EU heavyweights. It does culminate in Eurozone Industrial Production though, which is expected to fall by 1.0% YoY in March. A weaker number than that is going to be another headwind for Eurozone equities and the Euro itself. Intraday volatility will also be driven by developments regarding back-and-forth sanctions by Europe and Russia. None of it adds up to going home long Euros or European equities into the weekend.
Asian equities stage a technical rebound
Asia-Pacific equities are staging a relief rally today after Wall Street stabilised late in the session as Jerome Powell calmed nerves over potential 0.75% rate hikes. The rebound of cryptos and stable coins also lifted sentiment. The S&P 500 closed just 0.13% lower, the NASDAQ rose 0.06%, and the Dow Jones fell by 0.28%. Given the losses intraday, that was an impressive finish. The rally is continuing in Asia, with futures on all three recording strong gains. S&P 500 futures are 0.70% higher, NASDAQ futures have jumped by 1.0%, and Dow futures have climbed by 0.55%.
The almost unchanged finish yesterday, and the rally by US futures this morning, are lifting Asian equities. Japan’s Nikkei 225 has jumped by 2.55%, while South Korea’s KOSPI has gained 1.65%. Despite Shanghai restrictions extending once again, Mainland China equities are also rising. The Shanghai Composite is 0.65% higher, with the CSI 300 rising by 0.55%. Meanwhile, the Hang Seng has rallied by 1.75%.
Regionally, Singapore is 1.40% higher, with Taipei gaining 1.25%, Kuala Lumpur 0.45%, but Jakarta has lost 0.75% after retail sales disappointed yesterday. Bangkok is closed today, while Manila has edged 0.25% higher. Australian markets are performing well, the All Ordinariess and the ASX 200 rallying by 1.30%.
Nothing has materially changed in the world from yesterday, and if anything, Russia/Europe risks are increasing. The rally today looks more like a technical rebound after a torrid week, than a structural turn in sentiment. As such, it should be taken with a grain of salt.
European markets fell yesterday with the Euro as Russia announced sanctions on some European gas importers. Finland is expecting much the same treatment as soon as it announced formally it will join NATO. The weaponisation of natural gas by Russia towards Europe was always the single biggest threat to the Eurozone. With that process starting, European equities will struggle to maintain rallies, even if markets elsewhere manage to do so.
Gold wilts on US Dollar strength
Precious metals as a group suffered heavy losses yesterday, with investors appearing to prefer the haven of the US Dollar and US bonds, with their appealing yields. The impressive US Dollar strength saw gold take out its 200-day moving average and triangle support between $1835.00 and $1836.00, finishing 1.65% lower at $1822.00 an ounce. In Asia, the modest correction by the US Dollar had seen gold creep 0.20% higher to $1825.75 an ounce.
The failure of $1835.00 now sets up a test of support at $1820.00 and then potentially $1780.00 an ounce. Failure of the latter suggests a deeper correction to $1700.00. Gold has resistance at $1835.00, $1860.00, and $1884.00 an ounce, its 100-day moving average. Only a sudden US Dollar sell-off is likely to change the bearish technical outlook.