Markets remain twitchy

By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA,

It was another choppy night of range trading across most asset classes overnight, and as I have said previously, this week looks like it belongs to the day traders, not directional investors. Despite the noise intra-day, equities, precious metals and currencies finished the day broadly where they started. Some weaker than expected US housing starts and services PMIs, along with dovish Fed-speak from Bowman, saw a modest risk-on rally initially. However, later in the day, hawkish rhetoric from Messrs. Bostic and Kaplan abruptly reversed that course, with gold sharply reversing gains and the US Dollar rallying in the same manner, while US yields edged slightly higher. If nothing else, it highlights how nervous markets remain about the possibility of sooner than expected tightening by the Federal Reserve, despite Mr. Powell's attempts to dampen those flames earlier this week. It also likely explains why Asian currencies have shown no sign of rallying versus the greenback this week either. With a tier-2 calendar for the rest of the week, it would take a big miss lower by durable goods and PCE tonight to shift the dove needle materially - we will remain at the mercy of Fed-speak and a schizophrenic intra-day market. With a new month starting next week, the data calendar fattens up notably. We have PMIs, notably official and private China readings, and the US Non-Farm Payrolls on Friday, to name but a few. By the end of next week, we may better understand whether doves are flying, or hawks are swooping. I will be on Sumba Island, though, Indonesia's Covid-19 situation allowing. Asian markets remain equally calm today after New York's nil-all draw. A US bi-partisan group appears to have reached a preliminary agreement on the US infrastructure package and will be presented to the US President today. Its scope and how it will be paid for will interest financial markets the most, although it has caused no ripples in Asia. Bitcoin's recovery looks to have run out of momentum, for now, failing at $35,000.00 overnight and falling to $32,600.00 this morning. I feel I gained an insight into the crypto-currencies refusal to roll over and die like any tulip, Dutch or otherwise, eventually does. The answer lies partially, it seems, with millennial Daughter no.1. Yesterday, I was asked over WhatsApp (it's never voice, readers) whether she should invest in Bitcoin. For context, no.1 works in Australia and is an overachieving alpha female like Mrs. Halley. A veritable chip of the old block. She is very careful with her money and a diligent conservative saver. I couldn't even get her to buy index tracker ETF's. She is also the holder of a double degree from a tier-1 Australian University, one of which was business, and was Valedictorian of her year. My response was predictable, including asking the aforementioned university for a partial refund of five years of eye-watering international student fees. She expressed concern that she might be missing out on 10x gains by not investing. (Her words) Yes, millennials are looking for returns above zero percent like the rest of us. When I asked where this investment advice had come from, she replied TikTok. The real point is that if TikTok can tempt my expensively educated kids into buying Bitcoin, then by extrapolation, there are many FOMO dip-buyers out there. It makes me even more bearish of cryptos in general, and my new line in the sand is $28,000.00, where I suspect those sub-$30,000.00 stops were moved to ahead of the dip this week. A good dose of capitalism sorted out the problem, by the way. She is moving into her first non-flat share rental on her own soon, so I offered to up the budget for her birthday, stating, "I felt like I'd been done like a kipper." Once I explained what a Kipper was, she replied that she thought of it as "stakeholder management." I see a future career in politics, but not as a Minister of Finance. Today's calendar in Asia is bereft of excitement, with the Philippines BSP almost sure to leave its policy rate unchanged at 2.0%. With its focus entirely on supporting the economic recovery and inflation edging back near the top of its 2.0% to 4.0% target range, it would be a massive surprise if they hiked and an even bigger one if they cut. Asian equities drift lower Despite some intra-day volatility, Wall Street finished the day mixed and almost unchanged. The S&P 500 lost 0.11%, while the Nasdaq rose by 0.13% and the Dow Jones fell by 0.21%. Despite the futures on all three indexes adding around 0.30% in Asia as progress was made on the US infrastructure package, Asia has, for the most part, drifted lower in sympathy with the overnight session. The Nikkei 225 is unchanged, with the Kospi following the Nasdaq 0.40% higher. Mainland China's Shanghai Composite and CSI 300 have drifted 0.15% lower, while Hong Kong is 0.10% higher. Singapore has reversed course and added 0.25%, with Taipei rising 0.20%. But Kuala Lumpur and Jakarta have fallen by 0.40%, Bangkok is down 0.60%, and Manilla is down 0.15%. Australian markets are equally quiet, both the ASX 200 and All Ordinaries reversing slight early losses to be unchanged for the session. The US infrastructure programme progress seems to have halted the negativity if not wholly turned sentiment across the region. By and large, Asian markets that are more "tech-heavy," are following the Nasdaq once again. Meanwhile, the more growth-orientated ones are mirroring the S&P 500 and Dow Jones. That points to an equally nondescript opening for European equities this afternoon. It remains a day trader's market this week, and intra-day swings will continue to shift on Fed speaker headlines. Next week should see the return of more directional moves. The US Dollar remains firm The US Dollar retreated initially overnight on soft US data and some dovish Fed-speak. The dollar index fell to support at 91.50, its 200-day moving average (DMA), before hawkish comments from Fed officials Bostic and Kaplan abruptly turned its direction higher. The dollar index finished the day 0.10% higher at 91.78. Similar moves were mirrored by the major currencies, with EUR/USD and GBP/USD rallying before retreating to finish almost unchanged. AUD/USD and NZD/USD rose around 0.35% to 0.7575 and 0.7050 and managed to hold onto these gains, reflecting the mixed views on risk sentiment at the moment. Both antipodeans are clinging onto their 200-DMAs, suggesting further gains if US data is softer tonight and the greenback falls. USD/JPY peeped above 111.00 overnight and remained there this morning after US yields firmed slightly overnight. However, it lacks momentum still, and I suspect US yields will need to move directionally higher for USD/JPY to sustain itself at these levels. The pair remains a yield differential play. US/Asia continues to drift higher after the PBOC, once again, set a weaker Yuan to fix versus the US Dollar this morning. With onshore USD/CNY at 6.4805 and offshore USD/CNH at 6.4825, both pairs have now closed above their respective 100-DMAs. Notably. This week, USD/Asia has not managed to retrace any of its US Dollar losses, suggesting once again, regional markets are still susceptible to taper-speak, and hawkish Fed official-speak. With the PBOC seemingly signaling it wants a weaker Yuan, the downward pressure will remain on Asian currencies as a whole for now. Crude Inventories offset OPEC+ nerves Official US Crude Inventories and Gasoline Inventories fell by much higher than expected totals overnight, leading to an intra-day spike in crude prices. However, subtle hints from Saudi Arabian and Russian officials about oil production and inflation muted the gains. Oil markets shifted higher the probability of a move by OPEC+ next week to open the taps. Still, Brent crude managed to finish 0.90% higher at 75.40 a barrel, while WTI rose just 0.25% to $73.25 a barrel. Headlines suggesting that the US is open to continuing nuclear talks with Iran, despite a new hard-line President, has seen oil edge lower in Asia, both contracts shedding 15 cents a barrel. With OPEC+ to meet next week, the possibility that US/Iranian talks are not dead in the water, and the relative strength index (RSIs) on both contracts in overbought territory, oil is vulnerable to a short-term correction lower after a mighty rally. A speculative long washout should be limited to $73.00 for Brent crude, and $70.00 a barrel for WTI. Unless OPEC+ massively opens the taps next week, any material dip should be short in duration. Gold's recovery hits a brick wall at $1800.00 Choppy range trading continued in gold overnight, with markets generally struggling to settle on a unifying theme, something that has typified the weeks trading across several asset classes this week. Gold rose seventeen dollars to test its 100-DMA at 1793.00 overnight, only to retreat as Fed Officials Bowman and Bostic comments erred on the hawkish side of the inflation/interest rate divide. Gold finished almost unchanged at $1777.00 an ounce, easing 0.30% lower to $1774.00 an ounce in Asian trading. With a lack of clear direction, and contradictory themes coming from Fed officials, I expect gold to continue its choppy range-bound trading. It is bordered by support at $1760.00 and resistance at the 100-DMA at $1793.00, followed by $1800.00 an ounce. I expect this range to hold until the end of the week. The market remains nervous about earlier lift-off entrenched inflation type headlines. Its inflation-hedging correlation being weak versus its correlation to the US Dollar and US yields for now. So, gold will stay a sell on rallies, although a weak RSI suggests that gold's path of least resistance could be higher, given the right driver. That could be a much weaker US Durable Goods print this evening.

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