Equities markets tumbled, the US dollar rallied, bond yields edged higher, and precious metals fell on Friday. Meanwhile, energy markets continued reacting to a disappointing OPEC+ meeting on the production front, Brent crude and WTI both closing just above $120.00 a barrel. We can expect more of the same behavior from US markets this week, tiring and asinine as it may be.
US markets will have a second bite of the cherry this Friday when Inflation and Core Inflation for May are released. YoY Inflation is currently expected to be unchanged at 8.30%, with Core Inflation expected to ease slightly to 5.90%. As per Friday’s note, we can once again expect a binary outcome as we head into next week's FOMC policy decision. An "on forecast" to lower number equals buys everything, sell US dollars, higher equals sell everything buy US dollars. It’s pretty hard to guess what the FOMO gnomes of Wall Street will do until Friday, but I’m pretty sure volatility will, once again, be the winner.
Asia is having an altogether more orderly start to the week thankfully. China has announced a further easing of curbs in Beijing over the weekend, which is seeing some Asian equity markets, and US futures, trading in positive territory. Other glimmers of relief are that officials in Washington D.C. are considering a selective removal of tariffs on Chinese imports to aid the inflation fight.
In the energy space, Reuters is reporting that Washington DC is allowing Spain’s Repsol (BME:REP), and Italy’s Eni (BIT:ENI), to resume debt-for-oil shipments with Venezuela. With Libya announcing its largest oil field had finally restarted operations. Oil has shrugged those headlines off in Asia, holding steady on weekend news that Saudi Arabia had hiked oil export prices to Asia and Europe, and with China reopening hopes suggesting higher oil demand.
Asia’s data calendar is quiet today. Australian ANZ Job Advertisements for May rebounded to a 0.40% gain MoM, after dropping 2.0% in April. More importantly, China’s Caixin Services PMI for May rose to 41.4 from April’s shocking 37.2 print. 41.4 is nothing to write home about either, but investors will take heart that some sort of rebound has taken place even as restrictions remained in place in Shanghai and Beijing, and that as they ease in both cities, the rebound will accelerate. That seems to be another tailwind for China equities today.
Holidays will impact markets today with South Korea, New Zealand, and Malaysia away today. Much of Europe is also closed including Germany, France, the Netherlands, and the Nordic region. UK markets return from a four-day break, with the UK media reporting that Prime Minister Boris Johnson could face a vote of no confidence and a leadership challenge this week. I’m not sure if BoJo’s demise would be bullish or bearish for the Ssterling or UK equities, I guess it depends on your point of view.
The data calendar is also very quiet in America this afternoon with the most heavyweight data releases back-ended later in the week including US CPI. Tomorrow, we have a Reserve Bank of Australia policy decision, with the Reserve Bank of India on Wednesday. With all three, a rate hike is a certainty, the main question being by how much and whether slowdown fears cause them to blink on aggressiveness.
The next 24 hours in global markets, therefore, are likely to be driven by headlines and intraday swings in sentiment. A case in point being the Bank of Japan’s Kuroda reiterating today that there would be no tightening of monetary policy, which has lifted Japanese equities at the periphery while maintaining upward pressure on USD/JPY.
Asian equities are higher on Beijing reopening
Friday’s higher than expected US Nonfarm Payrolls saw Wall Street make an abrupt retreat as easier Fed hiking hopes on a slowing economy were dashed, although I’d argue a slowing US economy wouldn’t be good for equities either. The S&P 500 finished 1.63% lower, the NASDAQ tumbled by 2.47%, and the Dow Jones fell by 1.06%.
In Asia, an easing of restrictions in Beijing, along with reiterations of easy monetary policy in Japan has shielded Asia from New York’s back-and-forth volatility, lifting sentiment in US futures and North Asian markets. US futures have rebounded with NASDAQ futures rising 0.70%, S&P 500 futures are 0.50% higher, and Dow futures have added 0.40%.
Japan’s Nikkei 225 has risen by 0.60%, unwinding a rocky start. South Korea is closed today, but Mainland China’s Shanghai Composite has jumped by 1.05%, with the CSI 300 leaping 1.50% higher. Hong Kong’s Hang Seng has rallied by 1.10% and it appears that reopening news and its positive outlook forward is outweighing any backwards-looking Chinese data like the PMIs for now.
The picture is more mixed in the rest of Asia, possibly thanks to higher oil prices and a soggy New York close. Singapore is 0.15% lower, having unwound most of its earlier losses. Taipei is 0.55% higher, while Jakarta has fallen by 1.50%, led by resources after the Government announced it was investigating potential palm oil distribution cartels. Malaysia is closed today, while Bangkok is just 0.25% lower, and Manila is down by 0.55%. Australian markets have also been unable to shake off Friday’s weak Wall Street close, ahead of an expected rate hike by the RBA tomorrow. The All Ordinaries are down by 0.25%, with the ASX 200 falling by 0.55%.
With most of Europe closed today, most eyes will be on UK markets, which reopen after a four-day break. The rise in oil prices over the past two days is likely to make cost-of-living concerns front-and-center again, potentially weighing on sentiment. A potential change of leadership in the UK, regardless of your political views, will be another source of uncertainty.
US dollar eases lower in Asia
Friday’s higher Nonfarm Payroll data saw the US dollar reverse much of its losses from Thursday, characterizing a very choppy back-and-forth week last week. The Dollar Index by 0.40% to 1.0217, leaving the index slightly higher for the week. Notably, the rally was not enough to lift the index above its 102.35 pivot point, suggesting that the downside remains the path of least resistance still. Support/resistance lies at 101.30 and 102.70. In Asia, the China reopening trade has pushed the index slightly lower to 102.11.
EUR/USD fell only slightly by 0.27% to 1.0720 on Friday post-data, where it remains in Asia. Resistance between 1.0770 and 1.0830 remains a formidable barrier, with support at 1.0650. However, the single currency continues to show resilience at these levels, and resistance could be seriously tested if China's reopening trade continues to support risk sentiment. Volumes will be impacted by European holidays today.
Sterling tumbled by 0.70% to 1.2490 on Friday in yet another whipsaw session. It remains there in Asia today. It has support/resistance at 1.2460 and 1.2670. A UK leadership challenge this week may serve to limit gains but a clean break of 1.2670 opens a potentially larger rally to 1.2800 and 1.3000, while the failure of 1.2460 could see sterling fall to 1.2400.
USD/JPY rose 0.73% to 130.85 on Friday, accounting for most of the dollar index gains post US data as US bond yields firmed slightly. USD/JPY has edged 0.15% lower to 130.65 today despite dovish BOJ comments, but the US/Japan rate differential should continue to support the downside unless US yields suddenly fall sharply. It has support/ 129.00 and resistance at 131.00, a double top, and 131.30.
AUD/USD fell post US data as risk sentiment turned south. It finished 0.80% lower at 0.7205, easing another 0.20% to 0.7195 in Asia. AUD/USD has nearby support at 0.7180, an ascending one-month trendline, with resistance between its 50/100/200-day moving averages (DMAs) between 0.7225 and 0.7255. RBA hiking concerns ahead of tomorrow's RBA meeting look set to limit gains in the short term.
USD/Asia moved higher on Friday on firm US data, with the Korean won, New Taiwan dollar, Singapore dollar, and Indian rupee the main losers, being favorites by fast-money to express risk sentiment of late. yuan trading was impacted by a China holiday. Markets are quiet in Asia today, with Asian currencies booking only small gains versus the greenback. The sharp rise in oil prices on Friday, which continues in Asian trading today, is likely limiting Asia FX gains. The double-edged sword of China's reopening is that oil prices are likely to remain firm as well as demand returns.
Oil is steady in Asia as Saudi Arabia hikes prices
Oil prices ignored Fed tightening nerves after the US data, rallying strongly with the relaxing of China COVID curbs, with its ensuing return of oil demand, the story driving oil markets. Brent crude rose 2.70% to 121.25 a barrel, with WTI rising 2.35% to 120.35 a barrel. There seems to be some confusion with pricing feeds on oil futures today, possibly as platforms shift their front-month futures from June to September. Brent crude has eased slightly in Asia to $120.45 a barrel, while WTI has eased to $119.65 a barrel. While China relaxing COVID curbs and Saudi Arabia hiking selling prices to Asia and Europe are supporting prices, potential Venezuelan shipments to Europe are providing temporary resistance.
Whichever way you look at it though, both Brent and WTI prices are nearing post-Ukraine highs, stripping at the days of the initial hostilities themselves. Returning Venezuelan and Libyan production to Europe and North America, should it occur, will not be material enough in the shorter term to force prices lower. Refining margins globally suggest that demand for petrol and diesel remain in heavy demand, with the refining logjam in refined products backstopping crude prices.
Additionally, the damp squib OPEC+ meeting outcome, with some production bones thrown to some angry dogs, and a potential recovery in demand from Mainland China is it has got on top of omicron, provides yet more reasons to believe that physical demand will keep prices elevated.
Brent crude has resistance at $122.00, and $124.00, with support distant at $116.00 and $112.50 a barrel. WTI has resistance at $121.00, with now distant support at $115.00 and $111.25 a barrel.
Gold’s flip-flop ranging continues
Strong US data saw the fast-money longs in gold take fright and head to the exit door on Friday. That pushed gold sharply lower by 0.95% to $1851.00 an ounce as the US dollar rallied. In Asia, a moribund session has seen gold add 0.25% to $1855.70 an ounce.
The chart picture shows gold is now eroding resistance at $1870.00, touching $1874.00 an ounce on Friday. Overall, though, resistance at $1870.00 remains intact, followed by the 100-DMA at $1889.00, and then $1900.00. So, gold has plenty of wood to chop on the upside. Support is at $1844.00, $1830.00, and then $1780.00 an ounce. I do not discount a disorderly retreat if the latter fails.
Gold remains at the mercy of intraday direction moves by the US dollar it seems.