Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

A Game Of Two Halves

By MarketPulse (Jeffrey Halley)Market OverviewSep 16, 2021 04:12AM ET
A Game Of Two Halves
By MarketPulse (Jeffrey Halley)   |  Sep 16, 2021 04:12AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

We’re seeing a bit of this in financial markets at the moment. The US stock market roared back to life yesterday as the tier-2 NY Empire State Manufacturing Index for September massively beat expectations, printing at 34.3. that was enough to flush out the pent-up dip buyer demand out there with markets proclaiming the US recovery was back on track.

That ignores the fact that the previous day, the same market was wringing I hands about the low US Inflation prints and worries that we had reached “peak recovery.” They also ignored US Industrial Production and Manufacturing Production yesterday, both of which missed to the downside quite badly. But why let facts get in the way of a good story? I won’t even mention that slowing growth and rising costs equals stagflation. I am not sure how one even positions oneself for that outcome.

While Wall Street and US markets are selectively fact picking to suit the narrative of the day, which I expect most of Asia to happily follow, another game of two halves is brewing down under. New Zealand’s Q2 GDP data blew forecasts out of the water, rising by 2.80% QoQ Q2 (1.30% exp). I can tell you that New Zealand is overheating because we are looking to build a garage for our house there. We were turned down by three engineers and architectural draughtsmen because they had too much work on. And the builder can either do the job in January 2022 or January 2023. We’re just happy we got a builder before you ask. The data will be tempered by the Q3 lockdowns, but the RBNZ should be locked and loaded for an October hike now, even if Auckland is still under restrictions. Only the Delta-variant escaping Auckland and into the rest of the country will change that narrative.

Australian Employment, by contrast, was a disaster. August Employment fell by a higher 146,300 jobs (-80k exp), although the fallout on the currency was offset by the Unemployment Rate falling to 4.50%. Much better than market forecasts of 4.90%. The Bureau of Statistics notes though that there is evidence of Australians leaving the workforce permanently, which would, of course, flatter the unemployment rate. The culprit is the extended lockdowns in New South Wales and Victoria and the question is, will they rebound as sharply as previously once restrictions are lifted? The lucky country’s resource export machine is firing on all V-8 cylinders right now, and the RBA is letting more doves fly than Prince. (RIP) Expect the fallout on the currency to be limited, especially with the US Dollar falling overnight.

There is a lot of noise around the US, Britain and Australia and their new security partnership today, which is designed to enhance stability in the Indo-Pacific. The main feature being the intention to sell nuclear-powered submarines to Australia. China will make noises but behind closed doors be unconcerned. Britain’s fine armed forces have a limited capacity to sustain an extended conflict in Asia. Apart from upsetting the French, who have an AUD90 billion contract to build Australia’s next generation of submarines, it appears the nuclear submarines, once they have paid termination fees to the French, will be built in Adelaide. That means they’ll probably arrive in 2050 and be 100 times over budget. Good politics ahead of a federal election next year in Australia, but not much else. It won’t worry China and it won’t impact on markets.

North Korea and South Korea have traded missile tests over the last 24 hours. North Korea from a land site and the back of a train, South Korea from a submarine, which is a very rare club membership. The condemnations between Japan, North and South Korea are flying thick and fast today, and the escalation of the Korean Peninsula arms race is weighing on both South Korean and Japanese equity markets today and will continue to do so for the rest of the day. I do not see any lasting fallout though if you will excuse the accidental pun.

Evergrande is weighing on sentiment in China markets today after the housing authority apparently notified China’s major banks that no interest payments on loans would be forthcoming on Sept. 20. The ratings agencies took the slasher to Evergrande’s discredit rating once again overnight and follows scenes of protests in China over unpaid wealth management productions to unfortunate customers. Coming after the carnage in gaming stocks this week after the latest Government investigation targeted Macau’s casinos, China markets don’t have a lot to cheer about today. It seems that only the large SOE’s, effectively government departments, remain safe, hence their recent outperformance. The Evergrande saga, with its $300 billion of liabilities is reaching an endgame, with EverTeflon running out of non-stick material. I can see the mother of all debt/equity swaps being “encouraged” by the government, but in the meantime, the combination of the toxic cocktail outlined above will weigh on China equities. As I have said previously, buying the dip is a perilous business right now in China.

Overall, the week is going to plan thus far. As expected, markets, particularly in the US, are cherry-picking news headlines and tier-2 data to fit the narrative of flip-flopping daily sentiment. August US Retail Sales today, should they print lower than -0.80% will probably see yesterday's moves reversed as peak-recovery moves to ascendency once again. That said, given the selective memory recall displayed this week, could just ignore that data and focus on the Philly Fed Manufacturing Index or Initial Jobless Claims if they suit the dish-of-the-day narrative. Hopefully, next week’s cast of thousands line-up of central bank policy decisions, staring the Federal Reserve, delivers more thematic clarity. In the meantime, I shall leave my earplugs in to drown the noise and continue to believe in the gospel of buying the dip in a central-bank-primed, unlimited-money-at-zero-percent world.

China worries and missile tennis weigh on Asian sentiment

Wall Street powered higher yesterday after the Empire Manufacturing Index flushed out dip-buyers from the side-lines. The S&P 500 finished 0.85% higher, with the NASDAQ rallying 0.82%, while the Dow Jones climbed by 0.71%. In Asia, futures on all three have edged 0.05% higher.

However, the strong session yesterday on Wall Street has not resulted in a mechanical rally across Asian markets. It is a mixed picture today with mutual missile tests, and the ensuing sabre-rattling, sending Japan and South Korean markets lower. The Nikkei 225 is down 0.33%, while the KOSPI has retreated by 0.61%.

In China, markets are also on the back foot as Evergrande concerns rise, with authorities telling China banks not to expect interest on loan repayments next week. Combined with the Macau casino inquiry and poor data yesterday, China markets are struggling today. The Shanghai Composite is 0.30% lower with the CSI 300 down by 0.40%. Hong Kong has slumped once again, falling by 1.60%.

Regional Asia is faring somewhat better, if failing to match the exuberance of the Wall Street session. Singapore has risen by 0.30%, while Kuala Lumpur and Taipei are flat. Jakarta and Bangkok have risen by just 0.10% while Manilla has climbed 0.60%. Australian markets have been boosted by climbing energy prices and a positive overnight session, with the ASX 200 rising by 0.60%, and the All Ordinaries by 0.80%.

The localised issues in Asia will not be enough to knock Europe of course, although rising energy prices, notably natural gas, may be giving markets their food for thought. Nevertheless, I expect European markets to open positively today as we wait to see what sort of mood Wall Street is in this evening. A soft retail sales number could dampen enthusiasm.

US Dollar retreats as confidence returns

Markets ignored softer US Industrial Production data yesterday, concentrating on the higher than expected NY Empire Manufacturing Survey. Justifying that I suppose by saying one is forward-looking, and one is backward looking. The return of risk appetite, which saw equities rise, pushed the US dollar lower as haven trades were unwound. The dollar index retreated a modest 0.20% even as US yields firmed slightly, suggesting intra-day sentiment is ruling the roost now.

As ever these days, the index is almost unchanged in Asia and the index continues to trade comfortably within its recent 92.30 to 92.90 range. Hopefully, next week’s FOMC and other central bank decisions give us more thematic food for thought. The major currencies traced out modest gains on greenback softness with EUR/USD at 1.1815, GBP/USD at 1.3840 and USD/JPY at 109.30 today in Asia, almost unchanged from overnight. Much higher inflation data from the UK yesterday didn’t translate into sterling strength or calls for BoE rate hikes. That suggests that the data has been priced into the market’s outlook.

AUD/USD has retreated slightly to 0.7328 after the soft employment data balanced out by improving risk sentiment. 0.7300 remains near-term support while 0.7350 and 0.7400 provide resistance. NZD/USD has risen by 0.17% to 0.7120 today after blockbuster Q2 GDP numbers. With the RBNZ rate hike locked and loaded for next month, support at 0.7070 should remain intact. One note of caution to the universal bullish outlook would be if the Delta variant escapes a still locked-down Auckland. A truck driver who left the Auckland bubble has tested positive today. If cases appear out of Auckland, all bets on Kiwi are off and we have plenty of examples across the Tasman and elsewhere to base that on.

Although USD/JPY has been unmoved by the North/South Korea missile tests, USD/KRW and USD/TWD has moved higher by 0.25% today, along with USD/PHP in what seems to be a South China Sea trade of sorts. The rise seems reactionary rather then structural, and with the rest of USD/Asia unchanged following yet another non-descript PBOC USD/CNY fixing, I expect those rallies to run out of steam as the day progresses. USD/Asia remains locked in a pre-wait-and-see-FOMC status it seems, and I expect that to continue for the next week. Interestingly, neither the Malaysian Ringgit, nor the Indonesian Rupiah, are gaining any tailwinds from the rise in oil prices suggesting both remain vulnerable to US dollar strength, despite excellent trade numbers from Indonesia yesterday reducing current account fears.

Oil prices leap higher

Oil prices staged an impressive rally yesterday having spent the week ignoring the gloom sweeping other asset classes. Official US Crude Inventories surprised by falling by a much higher than expected 6.40 million barrels. The slow return of production and refining post-Hurricane-Ida being the main culprit. The relentless rise in natural gas prices, now starting to cause nerves to fray in Europe, is also helping to elevate oil prices and is a situation that I believe will get much worse before it gets better.

Brent crude carved through $74.00 a barrel on its way to an impressive gain to $75.50 overnight, rising slightly to $75.60 in Asia. $74.00 now becomes a support/pivot point. China’s announcement that it is selling some of its strategic reserves to the domestic market has had zero impact on prices and dips to the $74.00 region should find keen buyers. Brent crude has resistance near by at $76.00 and if that gives way, Brent crude should target the $78.00 a barrel area.

WTI leapt 2.65% higher yesterday, climbing to $72.60 a barrel, advancing to $72.70 in Asia. Any dips to $71.00 a barrel should be well supported, at least until we see concrete recovery progress from the Gulf of Mexico hub. A rise through yesterday's high at $73.10 suggests a test of $74.00 a barrel, which could extend to $76.00 next week.

Gold flashes more danger signals

Gold’s price action yesterday flashed more warning signs to bullish investors as prices fell despite the US dollar weakening and US yields remaining barely changed. Gold finished yesterday's session down 0.60% to $1793.50 an ounce. Gold rally on Tuesday failed at the 200-day moving average (DMA), and the uninspiring price action overnight is a huge warning signal that gold is living on borrowed time at these levels, with the path of least resistance looking more like lower by the day.

Gold has resistance at $1808.50, the 200-DMA which caped gains so well this week, followed by the 100-DMA at $1816.50 and a formidable series of daily highs around $1834.00 an ounce. Support lies initially at $1790.00 followed by the more crucial $1780.00 an ounce zone. Failure there is likely to see gold fall rapidly to $1750.00 an ounce and potentially lower.

Original Post

A Game Of Two Halves

Related Articles

Jeffrey Halley
A Positive Day For Asia By Jeffrey Halley - Oct 19, 2021

Equities rally in Asia Equities were rallying across Asia today after a strong overnight performance by Wall Street and a weaker US dollar in Asia, relieving some Fed-taper...

A Game Of Two Halves

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
SUNDAY OLABISI Sep 16, 2021 7:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Obum Ukpa chisom
Obum Ukpa chisom Sep 16, 2021 7:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how are you doin
Mehdi Aliakbar
Mehdi Aliakbar Sep 16, 2021 12:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Obum Ukpa chisom
Obum Ukpa chisom Sep 16, 2021 12:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email