Omicron fears continued to fade overnight, in North America at least, propelling the S&P 500 and Dow Jones to record closes, lifting oil prices, and weighing on the US dollar. Even gold managed to recoup most of its intra-day losses as optimistic long positions were once again culled.
The upbeat mood was helped along by better than expected US Retail Inventories and larger than expected drops in US crude oil and gasoline inventories, suggesting that despite the current virus wave, the US domestic economy continues to power forward. A dearth of heavy-duty data releases globally this week continues to leave markets driven by sentiment and by sentiment, I mean Omicron headlines.
As such, China has also shrugged off tightening virus measures in the city of Xi’an. A Bloomberg report indicated that Evergrande Property (HK:6666) once again missed two offshore bond payments on Tuesday, totaling around USD 220 million. A Ministry of Finance official said that China would guide interest rates lower for 2022 government bond issuance, which despite sounding a little bit illegal potentially in other countries, is a reason for cheer in China stocks, which are performing well today. The controversial IPO of SenseTime in Hong Kong today, up 25.0%, is also lifting the animal spirits of local investors.
Today’s only significant data release in Asia, South Korean Industrial Production rose to a 17-month high of 5.10% MoM. However, it was overshadowed by a virus-induced slump of 1.90% MoM by Retail Sales in November, with the KOSPI gently lower today.
Today's US Initial Jobless Claims will be of passing interest, a fall below 200,000 for the weekly number likely reinforcing the bullish sentiment dominating markets. Far more important will be China’s official Manufacturing and Non-Manufacturing PMIs for December released tomorrow morning. We should get a very binary outcome, up or down, on a decent deviation from the forecast 50.50 and 52.5 respectively. Otherwise, I expect the modestly bullish risk appetite washing through asset classes to continue as holiday season markets continue.
Asian equities are mixed
Wall Street rose modestly overnight as receding Omicron fears continued attracting buyers out of cover and back into equities, with the S&P 500 and Dow Jones having record closes. The S&P 500 rose by 0.14%, the NASDAQ eased by just 0.10%, and the Dow Jones rose by 0.25%. Most price action needs to be taken with a grain of salt at this time of the year, but the Omicron rear-view mirror trade appears to be favoring value over growth right now. In Asia, some long-covering has appeared, pushing futures on all three slightly lower by 0.05%.
Asia is having a mixed day in contrast, and it appears that some pre-New-Year's-Eve book squaring is weighing on some markets. Japan’s Nikkei 225 has fallen by 0.35%, with South Korea’s KOSPI down by 0.40%. Mainland China is enjoying a firm session, helped by dovish MoF comments earlier this morning around bond yields. The Shanghai Composite is 0.80% higher, while the CSI 300 has jumped by 1.05%. Hong Kong is just 0.30% higher, a successful SenseTime IPO balanced by a slump in Evergrande stock after more missed offshore bond payments.
Singapore has eased by 0.30%, while Taipei and Jakarta are just 0.05% lower, and Kuala Lumpur is down 0.10%. Bangkok is 0.05% higher with Manila closed for a public holiday. Similarly, Australian markets are also subdued ahead of New Year, the ASX 200 and ASX All Ordinaries edging 0.10% lower. Asia, ex-China, looks to have closed their books for the year.
US dollar fall resumes
After trading sideways for a few sessions, receding Omicron concerns amongst investors saw the US dollar resume its gentle retreat overnight as traders moved out of defensive positioning. The Dollar Index fell by 0.28% to 95.89, before rising to 95.95 in listless Asian trading. Support at 95.85 remains marginally intact, and a daily close below 95.80 should signal further losses to 95.50.
Major currencies continue to build modest gains with EUR/USD rising to 1.1345, and GBP/USD jumping to 1.3485 as Omicron hospitalizations remain controllable, even as infection numbers surge. USD/JPY has added 20 points to recapture 115.00 as defensive long-yen positioning continues to be unwound., AUD/USD has risen slightly to 0.7250, NZD/USD to 0.6845, and USD/CAD has eased to 1.2790 as investor risk appetite continues to improve.
Asian currencies have performed well this week, backstopped by a stubbornly firm Chinese yuan, despite weaker PBOC fixings. One would have to say that the renewed risk appetite from international investors is being most strongly expressed in regional Asian currencies at the moment.
Oil edges higher
Oil prices edged higher overnight thanks to larger than expected falls in US crude and gasoline inventories and receding virus nerves. Brent crude tested $80.00 a barrel intraday but finished the session 0.25% higher at $79.35. Crude inventories pushed WTI 0.75% higher to $76.60 a barrel. Asia has been modestly positive, lifting Brent and WTI 0.30% higher to $79.50 and $76.80 a barrel, respectively.
Brent crude has support at $78.15 and then $77.30 a barrel, its 100-day moving average (DMA). It has resistance at $80.00 a barrel, where it failed once again overnight. WTI has support at $75.40 and then $74.45, it's 100-DMA. It has resistance at $77.50 a barrel, near to its overnight high.
Gold flops and recovers
Gold showed, once again, how frail bullish sentiment is as recent long positions were stopped out overnight, gold falling $26 an ounce intraday to $1789.50 before a weaker US dollar led to an incipient recovery to $1801.00 in Asia today.
Gold’s attempts to stage a meaningful recovery remain unconvincing, with traders cutting long positions at the very first sign of trouble intra-day. It cleared the double top around the $1815.00 region but stalled just above at $1820.00. It faces resistance also at $1840.00 an ounce. Support lies at $1790.00, followed by $1780.00 an ounce. $1790.00 to $1815.00 continues to be my call for the range for the week.
With the US dollar looking more vulnerable to positive virus sentiment now, gold could potentially move higher throughout this week, but I still doubt it could sustain those gains. Traders should stay nimble.