Tapering nerves receded further overnight after a very soft ADP Employment number and the ISM Manufacturing PMI employment sub-index contracted. That has taken the heat out of expectations for this Friday's US Non-Farm Payroll data and further reinforced Fed Chairman Powell's cautious approach in the markets' minds.
Equities traded sideways, with tech outperforming in an old school flight to quality. Although US yields remained mostly unmoved, the reduction in tapering fears impacted the US dollar, which fell sharply versus the major currencies overnight. That was helped along by more hawkish rhetoric emerging from Europe after higher recent Eurozone and German inflation numbers.
OPEC+ took only 30 minutes at their JMMC meeting to approve a further 400,000 bpd of production this morning, in line with their previously announced schedule. That sent oil prices lower, but a 7 million barrel drop in official US Crude Inventories saved the day for black gold.
Asian markets were trading cautiously today as the street moved into a pre-Non-Farms holding pattern. An early rally in China equities looked in danger of being snuffed out by, you guessed it, the Chinese Government. Reuters was reporting that 11 ride-hailing firms have been summoned by regulators and the Transport Ministry to a "meeting." Another day, another clampdown. Dip-buyers in China equities will keep dipping their toes. However, I believe we are a long way still from repricing China equities to a level that balances the Government's "enthusiasm" for common prosperity.
Economic releases in Asia today were mostly positive. South Korean final Q2 GDP improved slightly to 0.80% MoM and 6.0% YoY. That positive note was offset, to some extent, by August Inflation coming in higher than expected at 0.60% MoM and 2.60% YoY. The Korean won barely reacted, circling in a Non-Farm holding pattern, but the prospects of further Bank of Korea rate increases loom, and that was weighing on local equity markets.
Australia's Balance of trade for July outperformed, rising to AUD 12.117 billion, while Home Loans only contracted by -0.40%. Both exports and imports increased, and despite the COVID-19 lockdowns, the economy is proving remarkably resilient. Improving risk appetite saw the Australian dollar rally powerfully overnight. Still, equities received no solace from the data today, focusing on warnings from the medical establishment about the health systems' ability to weather a full reopening once vaccination targets have been met.
The data calendar was a wasteland across Asia and Europe for the rest of the day. US Initial Jobless Claims will receive more than usual attention after the ADP data and ahead of the US Non-Farms. But most eyes are likely to be focused on US Factory Orders for July.
In the bigger picture, though, it looks like we are in for a headline-driven 24 hours in financial markets until tomorrow’s main event in New York. Currency expectations are for a 750,000 jobs Non-Farm Payroll print. With the taper doves in control at the moment, a much higher number is likely to have the greatest surprise factor. That said, the street now looks locked and loaded for a good old-fashioned FOMO-buy-everything sell US dollars move if the data is soft.
Asian equities mixed ahead of US data tomorrow
Asian markets were having a mixed day, with a bias to the downside, as regional investors digested the latest Chinese Government clampdown of the day and looked to reduce exposure into tomorrow's US Non-Farm Payroll release. Overnight, there was also a sense of positioning for safety as US technology outperformed in what was otherwise a slightly negative session after the US ADP and ISM PMI data.
The S&P 500 finished just 0.03% higher, while the NASDAQ rose by 0.33%, with the Dow Jones edging 0.13% lower. Futures on all three were slightly negative in directionless Asian trading.
In Asia, the Nikkei 225 rose 0.30% after BoJ Board member Kataoka said the Japan recovery was not fast enough and the BoJ could ease further. In South Korea, the KOSPI fell by 1.05% after higher than expected inflation data raised the specter of further central bank tightening.
China's summoning of 11 ride-hailing firms for a meeting did not impacted the main Shanghai Composite index, which was 0.50% higher, but saw the CSI 300 fall by 0.33$% with Hong Kong treading water, up by just 0.15% today. Singapore's Straits Times edged 0.17% lower, with Taipei down 0.55%, Kuala Lumpur easing by 0.14%, and Bangkok unchanged.
Australian markets took fright at warnings by the Australian medical establishment that they were not ready for a deluge of COVID-19 cases once the economy reopens. Fears that today's Q2 Balance of Trade would be a high-water mark for the economy, much of it in lockdown in Q3, also seemed to be weighing heavily. The ASX 200 fell by 0.80%, with the All Ordinaries lower by 0.60%.
Equity markets appeared to be reacting to a combination of local headlines and pre-US-data positioning adjustments on a slow news day. Assuming the same pattern of behaviors, I expect European markets to open on the heavier side, especially as inflation-fighting rhetoric is getting louder from the ivory towers of central bank intelligentsia.
The US dollar retreat continues
The US dollar fell once again overnight as hawkish inflation rhetoric from Europe lifted the euro, and US ADP and ISM PMI data reinforced expectations of a softer jobs print from the US tomorrow, adding credence to Jerome Powell's apparently dovish Fed tapering outlook. The dollar index fell by 0.15% to 92.50, where it remained in Asia today.
That hawkish euro-inflation lifted EUR/USD by 0.25% to 1.1840, and a rally through 1.1860 targets 1.1900. GBP/USD was dragged higher to 1.3775, but it once again failed at 1.3800. GBP/USD needs to overcome the 50 and 200-day moving averages (DMAs) at 1.3810 to swing the technical picture decisively bullish.
With US tapering fears receding, risk sentiment bell weathers, the Australian and New Zealand Dollars outperformed. AUD/USD rose 0.70% to 0.7365 as of this morning and remains on track to test 0.7400 ahead of the US data. NZD/USD rose by 0.30% to 0.7065 but must overcome the 100 and 200-DMAs at 0.7085 and 0.7115 to maintain upward momentum. A soft US Non-Farm Payrolls print tomorrow night should greenlight 200 point-plus rallies by both next week.
With USD/CNY holding steady once again at 6.4620, regional Asian currencies have been left to their own devices today. USD/THB and USD/KRW were 0.40% higher, with the rest of USD/Asia slightly higher for the session. After rallying powerfully for the last week or so, it looks like investors are trimming Asia FX long positioning into the US data.
With the US ADP and PMI data overnight signaled employment remains subdued. Although not for employers not trying hard enough to hire workers, the market has decisively shifted towards the US Non-Farms coming in on the soft side of 750,000 jobs. That reinforces the market's preferred narrative of a later and slower taper, thus keeping the buy-everything rally's momentum going. Therefore, a surprise print above 900k is likely to have a greater impact. We could see a squeeze of short US dollar positions across both the DM and EM space in that scenario.
Oil falls on OPEC+
Oil prices fell overnight as OPEC+ took less than 30 minutes to go ahead with adding scheduled 400,000 bpd of production to global markets. Additionally, the group revised their consumption forecasts to swing to a production surplus of 2.5 million bpd in 2022. Oil prices fell initially but were salvaged later in the session after official US Crude Inventory data recorded a surprise 7.0 million-barrel fall.
Brent crude finished the overnight session 0.55% lower at $71.30, and WTI closed 0.40% lower at $68.25 a barrel, having spiked lower to near 67.00 intraday. The noise of the overnight session was not repeated in Asia, where both contracts recorded a modest 0.15% recovery. Brent crude was trading at $71.40 and WTI at $68.35 a barrel.
Both contracts were flirting with support at their 100-DMAs, with WTI closing below it. The inability to maintain support at $72.00 and $68.00, respectively, suggested that the downside remained the path of least resistance now. It was also notable that the giant falls in US crude inventories and the production closures from Hurricane Ida had no meaningful, supportive impacts on oil prices. Therefore, Brent crude could test $70.00 and WTI $67.00 a barrel ahead of tomorrow's US jobs data.
Gold is unchanged once again
Gold finished another session unchanged for the 3rd day in a row, closing at $1814.00 an ounce overnight. It continued to trade aimlessly in a narrow range in Asia, easing 0.15% to $1811.60 an ounce.
For now, gold appeared to be off investors' radars, but my concerns that upward momentum was stalling were increasing. After the V-shaped recovery last week, gold was unable to break out of the confines of its 100 and 200-DMAs, today at $1814.50 and $1809.40 an ounce, respectively. Notably, it failed to find any upward momentum from the US dollar retreat this week, which was a significant warning sign of a loss of upward momentum.
Gold is vulnerable to a potentially sharp fall through $1800.00 an ounce ahead of the US data tomorrow, which could flush out fast-money longs, potentially extending losses to $1780.00 an ounce. Gold has resistance at $1820.00 and then a formidable resistance zone between $1830.00 and $1835.00 an ounce.
Bitcoin on the move
Finally, it looked like cryptocurrencies were on the move higher again, despite the US SEC head saying crypto platforms need regulation to survive. Maybe the anti-establishment Reddit army is out and about, as Ethereum rallied by around 18.0% over the past two days. That dragged Bitcoin higher, although not as much because it is more expensive to buy. I mean, cough cough because Ethereum (and this Cardano thing) has greater potential use in decentralized finance and the public blockchain.
Bitcoin was 1.55% higher at $49,600.00 of tax-payer revenue-backed fiat US currency today and could well reach my $51,000.00 target shortly if this momentum is maintained. (I'm bullish, remember?) Notably, Bitcoin dips over the past fortnight have all stopped just ahead of the 200-day moving average (DMA), at $46,000.00.
Although saying this leaves me wanting to shower and scrub myself vigorously, the technical support level is undeniable. Therefore, I remain bullish on Bitcoin as long as the 200-DMA holds on a daily closing basis. The technical picture suggesting a move higher through $50,500.00 sets up further gains targeting $58,000.00, as long as the supply of headless-chicken, get-rich-quick blockchain believers, cough cough, remains sufficiently engaged.