Today was looking remarkably like a rerun of yesterday, especially in US markets. Equities slumped once again, led by the NASDAQ, as did oil and Bitcoin.
The Federal Reserve financial stability report highlighted risks around rising interest rates, wars, and high inflation amongst others which frazzled Wall Street’s nerves. US 10-years traded in an impressive 17 basis point range, rising to 3.20%, before settling lower at 3.03%.
The late rebound also saw the US dollar give back most of its intraday gains, although Bitcoin only retraced part of its daily losses and stocks gained no solace. Markets can thank the Fed’s Bostic for the rebound, as he dampened down 75 bps hiking noise.
The price action was endemic of a market on edge as markets found themselves in a multi-directional vice grip of high inflation, supply chain disruption, a hiking Fed, a slowing China thanks to COVID-zero, and the Russian invasion of Ukraine.
That stagflationary noise just won’t go away, and it’s a scenario with no good choices for central banks. As a result, the rate hike globally inducing a recession was gaining more credence.
Little surprise that it was not a favorable environment for equities in particular, and other darlings that were pimped up in the central bank QE orgy through the pandemic like cryptos.
Apart from a China-induced slump in oil overnight, the other big mover was the crypto space with Bitcoin dropping a mammoth 14.25% to $30,900.00. The end of the era of central banks providing unlimited zero percent money to the world economy, and backstopping downward cycles at the first sign of trouble has come to an end.
Asset markets like cryptos, which rose that wave higher, were among the most exposed and it was becoming increasingly harder to hide for them, although they were not alone as the world resets itself to the late mid-’90s.
As far as Bitcoin goes, I noted that a break of the 1-year symmetrical triangle support at $37,400.00 would signal a move lower, initially targeting the $32,000 region.
That has been carved out and the technical picture suggested Bitcoin could trade as low as the $17,000.00’s. That was a big call, and it did seem to be making a stand ahead of $30,000.00.
Realistically, it needs to reclaim $37,000.00 to change the technical outlook and give the HODL’ers hope of a good night’s sleep.
In Asia today, the data calendar was light. Japan’s Household Spending MoM for March exceeded expectations, rising to 4.10% as the economy reopens and perhaps as Japanese consumers, front-load spending, faced with a non-deflationary environment for the first time in three decades.
Japan officials have reiterated the Bank of Japan monetary settings though, capping JGB yields at 0.25%, so nobody should be expecting a sustained yen rally unless US yields take a tumble.
South Korean data remained firm. The Current Account for March shrank slightly to $6.73 billion, but exports remained robust, although import costs rose sharply due to a weaker won and soaring energy prices.
That will flow through to higher inflation and keep the Bank of Korea on track for another hike at its next meeting. Similarly, Indonesian inflation popped through the topside of forecasts yesterday, and the pressure will increase on Bank Indonesia to hike next month.
It seemed to be capping USD/IDR around 14,500.00 still, but that strategy relied on favorable moves in US yields. It will soon need help from monetary policy, as will India, where the RBI was intervening in USD/INR overnight.
The election of the Marcos/Duterte ticket yesterday in the Philippines on subsidy promises meant the BSP has another headwind to cap USD/PHP appreciation, and its rate hike hand will soon be forced.
Australia’s NAB Business Confidence plunged to 10 in April from 16 in March, another headwind for local markets pricing in a China slowdown and an imminent federal election.
AUD/USD and NZD/USD remained at the mercy of global risk sentiment, and unsurprisingly, got clobbered once again overnight. Malaysian Industrial Production was a bright spot, increasing to 5.10% in March, although repeating that in April will be challenging.
Like the Australian and New Zealand Dollars, the Malaysian Ringgit seemed to be being used as a proxy for the China slowdown, and as a result, USD/MYR was going to remain bid unless US yields were to take a sudden and prolonged dive, leading to broader US dollar selling.
Bank Negara is another that may be forced into a prolonged series of rate hikes, just when it doesn’t want to. As I said, stagflation leaves no good choices for monetary settings, just least-worst choices.
The data highlight this evening will be the German ZEW survey, which, for obvious reasons, has continued downside risks. The US NFIB Business Optimism Index for April made for increasingly interesting reading these days, especially the broader report on the state on independent businesses in America. However, it will likely be the slew of Federal Reserve talking heads tonight that will dominate intraday volatility.
In Asia today, short-term moves in currencies and equities seemed to be following the intra-day moves in Bitcoin. Or it could be the other way round. I’m not sure if the dog was wagging its tail or the tail was wagging the dog.
It was a powerful indication of the nervousness out there. Looking at real markets though, I am monitoring oil prices. Having tumbled heavily overnight, we are not seeing the usual Asian buy-the-dippers today.
In fact, oil was lower in Asia today and that speaks much louder to me than noise in the crypto-space.
Asian equities follow Wall Street lower
Wall Street suffered another day of recession fears overnight, with equities slumping once again, relying on Bostic’s comments to salve the wounds and cap US yield rises and the US dollar rally.
The S&P 500 retreated by 3.20%, with the NASDAQ slumping by 4.29%, and the Dow Jones losing 1.97%. No sector was spared notably, and despite high inflation, cash is increasingly becoming King.
The rot has stopped in Asia, with US futures attempting to claw back some of the overnight losses as the bottom-feeders came out to play. S&P 500 futures rose by 0.60%, NASDAQ futures have jumped by 0.95%, and Dow futures have gained 0.45%.
In Asia, equity markets initially tumbled in response to the Wall Street moves, in a rerun of yesterday. However, the recovery by US futures this morning seemed to have taken the edge of the sell-off, with Asian markets recouping some of their earlier losses. Japan’s Nikkei 225 was down just 0.44%, with South Korea’s KOSPI down 0.47%.
Meanwhile, after a tough session yesterday, the intraday rally in sentiment pushed Mainland China exchanges well into positive territory. The Shanghai Composite and CSI 300 rallied by 1.0%. Hong Kong was pummeled earlier today, but also recovered somewhat. It remained 2.25% lower for the day.
In regional markets, Singapore was still down by 1.20%, while Kuala Lumpur was unchanged, and Jakarta slumped by 2.90% led by resource stocks.
Taipei retreated by 1.65%, while Manilla was down 1.0% post-election, with Thailand managed a 0.30% gain. Australian markets were also in retreat, the ASX 200 and All Ordinaries falling by 1.30%.
What made the session odd was that markets with a high sensitivity to the China slowdown were the worst performing in Asia today, but Mainland equities rallied.
The cynic in me suspected that China’s “national team” were busy today supporting the market, especially as COVID-zero policies remained in force and nerves were rising around Mainland property developers once again.
European markets will struggle to construct a bullish case today as well, also President Putin not declaring a war on Ukraine at yesterday's May Day parades could be a straw to grasp. The question was really whether the bounce in US equity futures today was the start of a recovery, or merely a corrective bounce to short-term oversold indicators.
US dollar eases in Asia
Currency markets had a volatile overnight session, the US dollar racing higher initially, before the rate-hike comments from the Fed’s Bostic stopped the rot, causing US yields and the greenback to unwind their intraday gains.
The dollar index finished just 0.10% higher at 103.75, having probed above resistance at 104.00 intraday. In Asia, some bottom-fishing was evident as US equity futures and Bitcoin rallied.
That saw the dollar index ease by 0.16% to 103.59. Support at 102.50 remained intact. A close above 104.00 will signal rapid gains to 105.00 and in the bigger picture, the technical picture still said a multi-month rally to above 120.00 was possible.
EUR/USD and GBP/USD finished sideways overnight after trading in over 100 pip ranges overnight, endemic of the uncertainty and resultant tail-chasing out there.
The dollar correction this morning lifted EUR/USD 0.14% higher to 1.0575, and GBP/USD 0.27% higher to 1.2360. Concerted breaks of 1.0600 and 1.2400 could see the correction extending another 100 points higher for both, but the medium-term technical picture remained grim.
The easing of US yields overnight stopped the USD/JPY rally just above 131.00 and it was trading unchanged at 130.40 in Asia after the New York late retreat.
USD/JPY direction remained at the mercy of the US/Japan rate differential, especially as a Japanese official reiterated the BOJ’s dovish stance this morning. Support lay at 128.50, but a rally by USD/JPY through 131.35 sets the stage for a move to the 135.00 area.
Asian currencies remained under heavy pressure overnight, with the RBI intervening to sell USD/INR yesterday afternoon to cap USD/INR gains. I suspect they weren’t the only Asian central bank around on the topside yesterday.
The retracement lower by the US dollar late in New York carried on into Asia giving Asian currencies some respite. Bitcoin was rallying impressively, and it could be that some cross-margining pressures in other asset classes were reduced, allowing the dollar to fall slightly.
It was likely to be the eye of the storm, however, and lower Asia FX remained the path of least resistance, caught in a vice between higher US yields, and a China slowdown.
Oil prices crushed overnight
Oil prices fell heavily overnight as the Fed stability report highlighted recession risks for the US and other countries, and the China slowdown story gathered momentum. President Putin declining to declare an official war on Ukraine also removed a risk factor supporting prices. Brent crude fell 6.90% to $105.20, and WTI fell by 7.15% to 102.60 a barrel.
In Asia, the usual procession of dip-buyers was notably absent today, leaving Brent crude to ease slightly lower to $105.10, and WTI to edge down to $102.35 a barrel. It was notable that Asian buyers did not appear today, although oil recouped some of its early Asian losses.
That suggested that Asian buyers, with a China slowdown for context, were not feeling an urgency to buy oil on any sort of dip for a change. Normally that meant they end up chasing prices higher in the days following, but today, oil markets did look like they had more room to fall in the shorter term.
Brent crude formed a triple top at $114.75 a barrel, which will be a formidable barrier in the near term. Similarly, Brent crude had formed a triple bottom at $103.30 a barrel.
A loss to $103.00 could signal a deeper correction targeting $100.00 a barrel. However, I was sticking to my broader $100.00 to $120.00 a barrel wider range ahead for now.
WTI had resistance at $111.50 with support at a triple bottom at $100.25, failure of which should see a test of $100.00 a barrel. Once again, I remained comfortable with a $95.00 to $115.00 a barrel outlook in the medium term.
Gold’s range-trading continues
Gold fell heavily overnight, although it remained contained within a broader $1850.00 to $1900.00 an ounce range. Gold tumbled nearly $30 to $1954.00 an ounce overnight, despite the US dollar and US yields staging a late session retreat.
I suspect gold was found guilty by association with the Bitcoin sell-off, and that we also saw an unwinding of risk-hedging longs after Putin declined to declare war on Ukraine.
The yellow metal rose by 0.42% to $1861.55 an ounce in Asia, piggy-backing the Bitcoin recovery and the green shoots of risk sentiment pushing the US dollar lower in Asia.
The rally was anemic though, and if the US dollar regains its mojo later today, gold could make a decisive test of the bottom of its recent range.
Gold was trading in a wide but noisy $1850.00 to $1900.00 an ounce range for now. A US dollar rally could see gold test the break-out triangle apex at $1835.00 swinging it into bearish territory.
That said, gold needed to close above resistance at $1900.00, $1920.00, and preferably $1960.00 an ounce to signal a renewed structural move higher. I foresaw more whipsaw trading ranges in the days ahead.