Follow the Leader

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

As has been the case in recent sessions, Asia is contenting itself with replicating the previous Wall Street session’s price movements, as the data calendar remains quiet in the region. There are exceptions, of course. China equities have dropped today after Western countries applied sanctions to Chinese officials. The New Zealand Dollar has fallen today after the Government surprised the country with some quite aggressive new property investment restrictions.

The New York session was nondescript, with US yields easing slightly after existing home sales missed badly to the downside. That was likely weather-related, but on a quiet news day, the resulting fall in yields was enough to spur a modest rally by equities, and a gentle retreat by the US Dollar.

Things should pick up this evening and may well lure market’s out of their dotage. Treasury Secretary Yellen, and Fed Chairman Powell were their usual upbeat selves overnight, but today we have four more Fed Governors speaking. Governors Barkin, Bostic, Brainard and Bullard are all scheduled to speak today, and maybe an interest rate outlook tidbit will spill from one of their lips.

The governments of the United States, Canada, Britain, and the European Union, jointly announced direct sanctions on Chinese officials associated with the Uighur issue overnight. The joint announcement infuriated China and will be sure to muddy the geopolitical waters going forward but was not immediately market sensitive. What China chooses to do in response could well be.

However, what may be market sensitive is that President Biden will receive briefings this week on the next stimulus plan he had campaigned on. Although no details have emerged, other than a mooted massive investment in infrastructure, the number of between three and four trillion dollars is significant. If more concrete details emerge this week, along with a proposed timetable, it is unlikely the US bond market will remain sleepy. The prospect of even more US borrowing should be enough to start yields higher again, with technology stocks losing at the expense of cyclicals.

The British and Europeans appear to be making some tentative headway in their AstraZeneca vaccine dispute. But the European Union’s blocking of Australian shipments and threats to block British shipments risks blowing up in their face politically. That story may have some distance to run yet. It is ironic given that the blood-clot scare may mean Europeans could be reluctant to take it anyway. The Nordic countries have ignored the EMA and kept it on the suspended list as Europe struggles to contain Covid-19 every man for himself sentiment. If Europe hoards AstraZeneca vaccines, but not enough people use it, and they are left with piles of expired batches, no amount of PR will dig them out of that ever-deepening hole.

The vaccine spat is negative for European and UK asset markets this week. Europe is also contending with spiking Covid-19 cases and reimposing or extending lockdowns across major European economies. That has been felt most keenly in oil markets, with reassessments of future consumption taking place. The spike in Covid-19 cases in India, the world’s third-largest oil importer, threatens to deepen that gloom. In Europe’s case, though, its recovery is now inevitably delayed and will be a headwind for the Bloc’s markets this week.

In Asia, the data calendar is quiet. Singapore Inflation is expected to rise to 0.60%, but before we get too excited, most of the gain will be due to the hike in petrol taxes. That was announced in the February budget and enacted immediately. For February, Taiwan’s Industrial Production is expected to suffer Lunar New Year-related falls, rising only 3.50% compared to January’s 18.80% rise. Given Taiwan’s role at the centre of global semiconductor manufacturing and the global chip shortage, that component will be closely monitored. A negative read here will also make itself felt in technology and car manufacturer stocks in the short-term.

China equities head South

Wall Street had another no news is good news session, allowing the buy-everything FOMO herd to dip their toes back into the water as US yields eased slightly. The S&P 500 rose 0.70%, the Nasdaq rallied by 1.23%, and the Dow Jones added 0.31%. Aftermarket futures have seen profit-taking, the S&P 500 and Dow easing 0.10%, while Nasdaq futures are 0.30% lower.

The US futures retreat has left Asian markets stuck in neutral, except China. Across the rest of the region, early modest gains have reversed, leaving most markets slightly lower. The Nikkei 225 is 0.20% lower, with the Kospi down 0.45% as North Korea allegedly shuffles missiles around.

China markets have taken fright at the joint sanctions imposed by Western powers overnight. Adding to the gloom, Baidu’s Hong Kong IPO today has been a damp squib, the stock barely moved, and vaping giant Smoore developed a hacking cough as its shares plunged 24% in Hong Kong, with the Government there announcing new regulations. Technology crackdown fears continue to persist. In totality, that has forced the Shanghai Composite down 1.20%, with the CSI 300 tumbling by 1.50% and the Hang Seng falling 1.40%.

ASEAN markets are mixed, with Singapore 0.20% higher, but Kuala Lumpur is falling by 0.65% as oil prices remain subdued. Jakarta is down 0.20%, with Bangkok unchanged. Although flooding damage may need to be priced into markets in the days ahead, Australia is equally subdued. The ASX 200 and All Ordinaries are down 0.15%.

European and UK equity markets are likely to open negatively as the rally in Asia quickly runs out of steam and reverses course. The waters will be further muddied by a statement just released by the US National Institute of Allergy and Infectious Diseases (NIAID) and reported by Livesquawk. Having reported a positive outcome for the AstraZeneca vaccine trial in the US yesterday, the NIAID has just released a statement questioning some trial data. The link to the statement is here.

https://www.niaid.nih.gov/news-events/niaid-statement-astrazeneca-vaccine

New Zealand Dollar sinks

Currency markets ranged overnight, with a slight fall in US yields prompting the US Dollar to retreat by 0.19% to 91.75. In keeping with recent trading patterns, the easing of Asian equity markets has seen the index recoup nearly all of the overnight lost, leaving the index drifting in the middle of its one-week range.

The primary mover in Asia today has been the New Zealand Dollar. The Government has announced some quite firm new measures to control New Zealand’s rampant property market. That has caused NZD/USD to fall by 1.05% today to 0.7085. Both the AUD/USD and NZD/USD have had persistent downside risks in recent times, and NZD/USD has now fallen through critical support at 0.7100. A daily close below 0.7100 targets more losses to 0.6900 in the sessions ahead.

Severe flooding in New South Wales and Queensland, and a flailing Kiwi, have combined to drag to AUD/USD 0.65% lower to 0.7700, another important support level. It now risks further losses to 0.7600 and possibly as far as 0.7400 ahead. The technical picture has been screaming that the Antipodeans were vulnerable for two weeks now, and it appears we are on the verge of just that. A rise in US yields in the coming days will set the scene for material moves lower.

With the major currencies drifting overnight in directionless trading, movements in Asian regional currencies remain modest as well. Regional Asia markets have edged lower versus the US Dollar today by between 0.10% and 0.20%. The Indian Rupee continues to surprise by holding firm, aided by falling oil imports. Selling pressures may emerge, though, if their Covid-19 resurgence intensifies. A sharp rise in US yields leaves the Rupee, Indonesian Rupiah, and Philippine Peso the most vulnerable of the region’s currencies.

Oil prices drift lower.

Oil prices edged lower overnight, Brent crude easing 0.40% to $64.25 a barrel, and WTI edging 0.25% lower to $61.25 a barrel. Asia’s downward pressure continues with Brent crude falling to $64.00 and WTI moving lower to $60.95 a barrel.

Oil remains in range-trading mode after its capitulation lower last week, and several factors appear to be thwarting any attempted recovery. The backwardation in the futures curve has narrowed dramatically since last Friday’s sell-off, suggesting that supply and demand int he near term is rapidly rebalancing. That may be flattered by the fact that most speculative longs (now stopped out) would have been positioning in the front-month contracts.

Concerns of lower-than-expected European consumption due to Covid-19 can now include India, the worlds’ third-largest oil importer. Reuters reports that India’s crude imports for February fell 18.30% from a year ago, suggesting an economic slowdown that Covid-19 will exacerbate if cases continue spiralling. China demand also appears to be less than anticipated, perhaps due to maintenance schedules with the worst of winter behind them.

OPEC+ is unlikely to ease production cuts in early April if prices remain at these levels, which should provide some solace to oil bulls. But given the asthmatic nature of the bounce in prices from last Friday’s sell-off, I cannot rule out another last move lower in oil prices ahead of the meeting.

Brent crude has resistance at $65.00 a barrel, with support at $63.50 a barrel and then $61.50 a barrel. Failure will see Brent crude retests the $60.00 a barrel support zone. WTI has resistance at $62.00 a barrel, with support at $60.50 and $59.00 a barrel.

Gold’s consolidation continues.

Improved risk sentiment overnight saw gold drift slightly lower, falling 0.35% to $1739.00 an ounce. In moribund trading, gold has edged 0.20% lower to $1735.00 an ounce. While waiting for further direction input, gold seems content to consolidate within a wider $1725.00 to $1750.00 an ounce range.

Gold’s overall price action remains construction, though, and the yellow metal is attempting to form a longer-term base, between its 61.80% and 50.0% Fibonacci retracements, setting the scene for a move back above $1800.00 an ounce if all goes to plan.

Gold has support at $1720.00 and $1700.00 an ounce, followed by the 61.80% retracement in the $1685.00 area. It has initial resistance at $1755.00 an ounce, followed by the 50.0% retracement at $1760.00 an ounce.