Equity markets were higher in Asia today as US index futures rallied after Meta Platforms (NASDAQ:FB) managed to post minuscule growth in user numbers overnight along with robust financials.
The results came too late to save OTC trading on Wall Street from a sideways day, but post-close extended trading allowed the FOMO gnomes, always on the lookout for any sliver of a reason to buy, to work their magic in Asian hours. NASDAQ futures rallied an impressive 1.25%, dragging S&P minis 0.70% higher.
Still, we shouldn’t rule out Wall Street returning to Seeker’s mode and singing The Carnival Is Over. This evening, both Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) release quarterly results and I would argue these are much bigger dogs than Meta.
Supply change disruptions, material price inflation and a cloudy outlook on the economic growth front were just some of the potential headwinds for both.
I wouldn’t argue against a sparkling set of financials for Q1, but the real gold will be in their forward outlooks. Depending on what they say, today’s equity rally will either be real gold, or fool’s gold.
Looking outside of the tail-chasing circus we know as the equity market, the real world continued to paint a much more cautionary tale. China's COVID-zero concerns continued overhanging Asia, despite more promises of an infrastructure-spending feast from Chinese officials.
Adjusted for inflation this year, the actual rise in spending on infrastructure, and thereby growth, wasn't so special on the Mainland.
The Russian ban on gas exports to Bulgaria and Poland sent natural gas prices surging in Europe again, and saw the euro take another hammering.
Oil prices held onto their initial gains from Tuesday after the announcement but didn’t add anything to them. If Russia expands its natural gas bans, it won’t stay that way and there seemed to be a great deal of complacency and Ukraine fatigue in the market right now outside of Europe.
Oil itself could be about to move lower though, as the Financial Times was running a story saying some of Europe’s largest energy companies were preparing to pay for energy imports via ruble accounts opened at Gazprombank in Switzerland.
If true, it will be a huge win for the Kremlin and pit EU politicians against European private companies. Either way that you look at it, it was unlikely to be supportive of the euro.
Yesterday’s inflation print above 5.0% in Australia had the market scrambling to pencil in a rate hike from the Reserve Bank of Australia at its meeting next week.
I’m still 50/50 on this one, especially with a Federal election due later in the month. June will be a live meeting though. AUD/USD rallied briefly after the inflation release but had since given all of that back.
As risk sentiment indicators, the AUD, NZD, and CAD, and one could argue, Her Majesty’s British Pound, have taken a beating recently. Federal Reserve rate hikes, next week’s FOMC meeting, China growth slowdown, global stagflation, the Ukraine/Russia war, one has an all-you-can-eat buffet of risk to choose from at the moment.
If you swat out the incessant buzzing from the equity market, other asset classes were universally suggesting a plethora of global headwinds.
Today’s data releases in Asia were a mixed bag. South Korea Business Confidence in April remained robust at 87. That hasn’t helped the Korean won though with the South Korean Finance Minister grumbling that the won had fallen too fast. Expect more intervention from the Bank of Korea ahead.
Japan’s Preliminary Industrial Production disappointed, rising just 0.30% in March. However, Retail Sales outperformed, rising by 0.90% in March YoY. An easing of social distancing restrictions in Japan could account for the surprise. All eyes were on the Bank of Japan policy decision.
The BOJ policy decision was to be the highlight of the Asian session unless we were to get a headline bomb from somewhere, though there was zero chance of the BOJ changing course on monetary policy.
It will remain ultra-dovish, as evidenced by the BOJ standing in the market this week to buy unlimited amounts of 10-year JGBs to cap yields at 0.25%. In breaking news, the Bank of Japan has left policy unchanged, and the USD/JPY jumped 1.0% higher to 129.70.
Keep an eye on developments out of Indonesia today. I do love this country, but the rapid policy about-faces by the government can be infuriating. Last night, Indonesia spoofed commodity markets once again, reversing the guidance of the day before that reversed the guidance of the President the day before that, and adding crude and refined palm oil back onto the export ban.
That should be good for substitutes like soybean oil but isn’t good news for food and FMCG products globally. Please refer to my note earlier in the week for my views on food nationalism and the potential food crisis in 2022.
Europe releases a swath of second-tier data today, but Eurozone economic, industrial and consumer sentiment indicators, along with German Inflation will be the focus. Eurozone sentiment in April will continue to take a beating for obvious reasons, weighing on the euro and Eurozone equities.
In all likelihood, the Financial Times story on European energy companies capitulating and paying for gas in rubles will capture the headlines. A collision course between Europe’s leaders and its private sector will be as good a reason to sell into any currency or relief rally as any.
The US releases Advance Q1 GDP this evening. The headline QoQ number is expected to retreat dramatically to 1.10% from 6.90% previously. That doesn’t tell the whole story though thanks to front-loaded inventory distortions.
More important will be the consumer components. PCR Advanced Prices data for Q1 has upside risk. A number substantially higher than the previous quarter's 6.40% will have the Fed tightening noises going up another notch.
Having said that, I am sticking to my guns and saying that the Apple and Amazon results will set the tone for the New York session.
Asian equities surge higher with US futures
Wall Street’s main indexes had a sideways day overnight, finishing almost unchanged from the day before. The Meta results though, have lifted US index futures sharply as Meta rallied by over 15% in extended trading, lifting other tech heavyweights. NASDAQ futures rallied by 1.25%, S&P 500 futures were 0.70% higher, while the value-orientated Dow futures rose just 0.20%.
That was enough to spark a relief rally of sorts in Asia today, although a barrage of infrastructure spending talk in China helped lift the gloom in China markets yesterday. Japan’s Nikkei 225 rose by 1.0%, with South Korea’s KOSPI climbing by 0.60%, while Taipei rallied by 0.75%.
In China, the Shanghai Composite gained 0.35%, with the CSI 300 rising by 0.45%. Hong Kong was performing its usual NASDAQ tail-chasing act, rising 1.0% in sympathy today.
Mainland equity markets were potentially holding back as mass testing gets underway in Beijing and news that parts of the port city of Qinhuangdao have been locked down. China’s COVID-zero issues have not gone away.
In regional markets, Singapore rose by just 0.20%, Kuala Lumpur was 0.55% higher, with Jakarta gaining 0.45%. Bangkok was 0.10% higher and Manila added 0.45%. Australian markets climbed on the Meta bandwagon, the ASX 200 and All Ordinaries climbed by 0.95%.
The Financial Times story suggested a ruble payment capitulation by European energy companies may give European stocks a reason to open higher today.
The relief was likely to be short-lived as the obvious conflict between Europe’s political masters and its private sector will be a major test of European unity.
Japanese yen plummets as BOJ stays ultra-dovish
The Bank of Japan reaffirmed its dovish stance at its policy meeting, and its commitment to cap 10-year JGB yields at 0.25%. Following on from a slight firming of US yields overnight, the yen plummeted in Asia as the US/Japan rate differential looked set to widen even more.
USD/JPY soared by 0.95% to 129.65 today, following a rise of 0.95% yesterday as well. Resistance at 130.00 held this morning, but a retest seemed inevitable now as broad US dollar strength continued.
Support remained at 127.00 and 126.00 and although the technical picture was overbought, any dips by USD/JPY should find plenty of willing buyers.
Elsewhere, the US dollar powered higher overnight as risk-aversion, the threat of more aggressive Fed hikes and ever-widening interest rate differentials kept the US dollar's momentum going.
The dollar index jumped by 0.68% to 103.00 overnight, taking out the top of a multi-year triangle at 102.50. In Asia, yen weakness flowed through to EUR weakness and combined, propelled the dollar index 0.43% higher to 104.33.
A weekly close above 103.00 resistance this week will have me pondering making a call for the 120.00 region in the months ahead. In the short-term, support lies at 101.00 followed by 99.75.
EUR/USD tumbled once again overnight, taking out support at 1.0600 as the Russian gas export ban on Poland and Bulgaria provided yet another headwind to the single currency. EUR/USD fell 0.74% to 1.0560.
In Asia, the sell-off continued as the yen plummeted. EUR/USD fell 0.45% to 1.0510. The FT had no positive impact today. The failure of the multi-decade decade support line at 1.0800 was a significant development, with the ease with which it fell through 1.0600 support overnight.
Although a short-term relief rally was not out of the question thanks to the oversold short-term technical picture, EUR/USD remained on track to test 1.0300. The response of European officialdom to the alleged plan to pay for gas in rubles will likely dictate if parity was tested in the weeks ahead.
GBP/USD consolidated just above 1.2500 overnight, easing to 1.2510 in Asia. EUR/GBP selling and GBP/JPY buying was adding some support to sterling today, but were not enough to spark an overdue relief rally as the relative strength index (RSI) was at extreme oversold levels.
Any relief rally will be short term as the broader technical picture was signaling further losses to 1.2200 and potentially sub-1.2000 in the weeks ahead. GBP/USD would need to reclaim 1.3050 to change the bearish outlook.
AUD/USD edged lower overnight but slumped in the face of US dollar strength this morning. AUD/USD fell 0.50% to 0.7100, taking out support at 0.7150. Unless global risk sentiment swiftly reverses, AUD/USD looked on course to test 0.7050 and 0.6950 by early next week.
NZD/USD slumped 0.70% to 0.6500 in Asia as business confidence data plummeted and imports soared. Resistance was at 0.6700 but the failure of support at 0.6525 today could signal a test of 0.6400 this week.
US dollar strength lifted onshore and offshore USD/yuan higher today as COVID lockdowns spread and mass testing in Beijing began. USD/CNY rose by 0.40% to 6.5900.
Meanwhile, USD/CNH soared through 6.6000, jumping 0.70% to 6.6315. With the PBOC seemingly unconcerned about the pace of the yuan retreat, economic clouds domestically, and an expectedly hawkish FOMC due next week, further yuan weakness seemed inevitable. That will likely spill over into regional currency weakness as well.
Asian currencies were weaker today as well, thanks to the sell-off in the Chinese yuan, a much weaker yen, and general US strength ahead of an expected 0.50% hike by the Fed next week.
The won once again was a proxy for Asia's nerves, USD/KRW rose overnight and gained another 0.40% to 1271.00 today. That prompted warnings by the Finance Minister that the pace of the fall was too fast.
I expect to see intervention by the Bank of Korea ramp up and they won’t be alone among the region’s central banks. The Malaysian Ringgit was surprisingly resilient. USD/MYR holding at 4.3600. Soaring palm oil prices, thanks to Indonesia, appeared to be supporting MYR for now. In the bigger picture, slowing China growth and higher US interest rates meant more Asia FX weakness ahead.
Oil slides on ruble buying plan
Oil markets were steady overnight as most of the news around the Russian gas ban on Poland and Bulgaria had been priced into the late New York session previously.
In Asia, oil prices were sliding which I put down to a combination of two things. The start of mass testing around Beijing and the partial lockdown of the port city Qinhuangdao, and the FT article suggesting that major European energy companies will comply with Russia’s demands for payment in rubles. The collision course with the people who run Europe is being ignored for now.
Brent crude fell by 1.45% to $103.65 in Asia, with WTI falling by 1.50% to $100.50 a barrel. I had some doubts as to whether Europe’s politicians will allow its private energy companies to capitulate to the Kremlin. That may bring forward more weaponizing of gas supplies by Russia. In this case, any retreat in oil prices could be the eye of the hurricane.
Content to stay out of the schizophrenic day-to-day noise of oil’s price action, my bigger picture view is that Brent will remain in a choppy $100.00 to $120.00 range, with WTI in a $95.00 to $115.00 range.
Gold suffers from US dollar strength
The storm clouds were darkening for gold as it wilts in the face of US dollar strength, not helped by US yields also moving higher overnight. It seemed that any risk-hedging buying was nowhere near enough to offset the selling pressure derived from US dollar strength.
Gold tumbled by 1.05% to $1885.50 overnight, falling another 0.40% in Asia today to $1877.50 an ounce. Gold was eroding support at $1880.00 and was in danger of taking out its 100-day moving average (DMA), just below $1875.00 an ounce.
The risk was rising of another capitulation trade pushing gold sharply lower to its original triangle breakout at $1835.00 and then support at $1820.00 an ounce.
Only a sudden reversal lower by the US dollar was likely to lift the pressure on gold now. It was facing layered resistance at $1880.00 intraday, followed by $1890.00, $1915.00, and $1940.00 an ounce.