It has been a while since I have seen such a flat-line session across multiple asset classes in Asia. A positive New York session has not translated across to the Asia -Pacific today, where the word “unchanged” would nicely cover currencies, equities, commodities and energy.
Although Wall Street equities continued to power higher, led by big tech, I suspect that Asia also has one eye on the disturbing re-emergence of COVID-19 across the world. Or in the case of the United States and Latin America and South Asia, its accelerating trajectory upward. New cases in Australia, New Zealand, China, South Korea and Germany are adding a note of caution to Asian markets, balancing out the V-shaped recovery gnomes of Wall Street.
Purchasing manager index releases across the world yesterday, showed a consistent pattern of recovery, with Europe a notable outperformer. Nonetheless, if COVID-19 results in renewed shutdowns in key economies, all that good work could disappear as fast as it began. After a three-month mega rally in global asset markets, The Street may mollify the pace of gains, even as the pace of national reopening accelerates, awaiting the outcome of many nations’ growth over graves strategies.
In Asia, the Reserve Bank of New Zealand (RBNZ) remaining unchanged at 0.25% in this morning’s rate decision. The RBNZ maintained its QE target of NZD 60 billion per month, but notably said that a rising currency pressures exports. Along with the Australian dollar, the New Zealand dollar has been a major beneficiary of the global recovery FOMO rally. Still, going forward, the RBNZ may start talking the currency down to take the edge of the pain for exporters.
Thailand’s Balance of Trade and Malaysia Inflation are the two remaining Asian data prints of note today, however, neither are likely to be market moving.
Germany’s IFO later this morning will be watched closely following yesterday’s PMI outperformance. Investors will be looking for another jump to 85 to reinforce that Europe’s powerhouse’s recovery, remains on track.
With the negatives and positives in almost perfect balance today, Asia looks set to drift in a directionless session, awaiting clearer direction from Europe and the US later.
Asian stock markets are flat-lined today
From Australia to Japan to China, to Singapore, Asian equity markets are all trading narrowly each side of unchanged. Asian investors, with one eye on the continuing COVID-19 outbreaks stubbornly occurring across the region, are reluctant to follow New York’s overnight lead blindly.
One notable exception is South Korea, where the KOSPI has jumped 1.60% today. We attribute that to North Korea saying they have decided not to take military action against the South.
Although Asian equity markets are in a comatose state today, they remain vulnerable to negative headline bombs like the trade tantrum Navarro-gate headlines yesterday. Any announcements citing increasing cases in major Asia markets will be negative for local equities.
US dollar sell-down continues overnight
Major currencies were again the significant beneficiaries of Wall Street’s largesse overnight, as the peak-virus gathered tentative steam once again in New York. EUR/USD rallied through 1.1300, GBP/USD regained 1.2500, while the USD/JPY tested 2-moths lows at 106.00 overnight, before settling at 106.50.
AUD/USD and NZD/USD also climbed overnight, but COVID-19 fears stemmed rallies against emerging and other resource currencies. For now, the dollar rotation appears to be more concentrated amongst the G-10 currencies, as markets monitor the pandemic trajectory elsewhere.
USD/JPY is intriguing, having slumbered each side of 107.00 for most of June, a daily close below 106.00 would set up further losses in the pair. An initial target would be 105.00, but in all honesty, the charts show no significant technical support until the mid-March lows around 101.00.
Oil unchanged in Asia after falling in New York
Oil markets didn’t buy into the equity market rally overnight, perhaps with one eye the explosion of COVID-19 cases in its Southern States, and a worrying increase in the freshly reopened New Jersey. Those fears are well-founded, with any reinstating of lockdowns in the US sure to reflect negatively on oil prices as the summer driving season starts. Brent crude fell 1.40% to $42.60 a barrel, and WTI fell 1.20% to $40.40 a barrel.
Official US crude inventories expected to continue to fall today, but Asia appears content to await that outcome with both contracts unchanged in today’s session.
The price action remains constructive in oil markets, but like equities, prices are acutely vulnerable to sudden downside spikes on headline surprises. With so much good news baked into oil prices, the pace of gains may be slow from these levels.
Gold finally rises through $1765.00
It has taken a month, and many false dawns of hope, but gold finally broke through daily resistance at $1765.00 an ounce overnight. Gold rose 0.75% to $1768.00 an ounce, tracing out a daily close above this key resistance point.
Although gold is moribund and unchanged in Asia, the technical picture now suggests that gold can begin its long-awaited assault on $1800.00 an ounce. Initial resistance lies at the overnight high of $1770.00 an ounce, with the road clear once this hurdle is crossed.
Before the gold bugs of the world get too excited at the negative real interest rate powered rally, a note of caution. The $1800.00 region was last tested initially in October 2011. After that, it was tested multiple times, for ONE YEAR until the bulls admitted defeat in October 2012. There should be no illusion about just how formidable the technical resistance is at $1800.00 an ounce. That said a weekly close above $1800.00 would set the scene for another leg of the longer-term rally.