Snap, Crackle, Pop

Snap, Crackle, Pop may bring back memories of breakfast cereals, but for Snap Inc their quarterly guidance was more of a dog's breakfast. Snap's stock price went snap, crackle, pop, as it fell by over 30 in extended trading after the CEO, in a note to employees, said it would miss quarterly guidance on growth and revenues. Blame was apportioned to the usual suspects, rising inflation and interest rates, supply chain shortages, and the impact of the Ukraine conflict amongst others. I'm not sure how any of that impacts a company that monetizes self-destructing 24 hours selfies taken by "the kids," but what would I know in my Boomer dotage? I do know that my two millennials have the most inelastic of demand for selfies, other photos, and little stories. I'm reasonably confident that I can extrapolate the social media habits of my girls to their wider demographic, plus 5 years and minus 10 years, with 100 percent certainty. None of the factors mentioned above plays a part in their need to "tell their story,' making the memo complete nonsense. One of them has never heard of Bruce Springsteen; heinous, but you can't tell me that as she publishes across Snap, TikTok , or Instagram Stories, she is thinking about supply chain disruption. By the way, Facebook is for old people in case you didn't know. Meta stock got slammed as well. What intrigued me about the Snap story wasn't Snap, it plays no part in my life. It was the price action. Stock markets had finally staged a broad rally overnight, after JP Morgan's Jamie Dimon said things weren't as bad as everyone thought. After an extended run of down days, the brain-washed buy-the-dip FOMO gnomes were desperate for a reason to buy, and that was as good as any on a slow news day. But when the Snap story hit the wires, after-markets index futures were sold heavily, led by Nasdaq futures, which are down by 1.40 percent in Asia as I write. That's stopped all the "worst is over" pundits in their tracks. It highlights how fleeting swings in sentiment are now and also that investors are running at the first sign of trouble. The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on. The result is a day-to-day chop-fest, and it seems clear that volatility is the winner. From my point of view, stagflation and food security keep me awake, with lower being the path of least resistance. The Fed, for example, hasn't even started balance sheet reduction yet, least we all forget. But I am a mere pilot fish of the financial market, not an island in its ocean. It is not just stock market's of course that are chasing their tails. The ECB's Christine Lagarde came out hawkish swinging in a blog post overnight. Ms Lagarde said the ECB policy rate would no longer be negative by September with rate hikes impending at the next meetings, all in the name of reigning in inflation. I'm not sure how raising the deposit rate from -0.50 percent to 0.00 percent represents an aggressive stance on controlling inflation, especially when you are still quantitatively easing at the same time, but what do I know? The European financial system has been on QE-driven life support since the GFC anyway, so I suppose this does represent a shift of sorts. That saw the Euro rally by over 1.0 percent against the US Dollar, and it sparked a general risk sentiment rally through the G-10 and EM FX complex, sending the US Dollar lower across the board. Combined with the strong CNY fixing from the PBOC yesterday, the US Dollar is poised for a much deeper bull market correction. But I will note, the Fed is just getting started on rate hikes, and will soon be selling USD95 billion of bonds a month into the open market, something the street seems to have forgotten/ignored. The US Dollars time will come again, and perhaps sooner than we think. Likewise, US bond markets continued gyrating as well. Long-dated yields rose overnight, unwinding much of the falls from the day before. Bond markets are running around like headless chickens, much like equities, as they try to price in much the same reasons as outlined above. The Fed's quantitative tightening may yet see US 10-years and out heading well north of 3.0 percent, although the 5y-30y OIS Curve has been flirting with inversion for some time. The contradictory signals pouring into markets from all directions mean we can expect to see plenty of volatility across asset classes in the weeks ahead, even if we don't get a thematic directional move. I'm still not sure how that environment is going to be constructive for equities though. In Asia we have had a mixed bag of data. Overnight, Taiwan Industrial Production rose by 7.33 percent YoY for April, better than March, but continuing a pattern of slowing growth when extrapolated back of the last 12 months. Notably, semi-conductor orders hardly grew with other high tech sectors contracting. The China slowdown, Covid domestically, and power outages are part of the story, but perhaps Taiwan is telling us that the monetary tightening around the world is already starting to have an impact as inflation erodes real incomes. We have a lot of PMI data coming in from across the globe today, and this morning, Australian Manufacturing and Services PMIs both eased to 55.3 and 53.0 for May. That is still comfortably expansionary, but like elsewhere, prices increases and the cost of living are nibbling away. Japan's Jibun Manufacturing PMI eased to 53.2, while Services PMI rose to 51.7. The data likely reflects a China slowdown and domestic consumption rising as virus restrictions ease. Germany's IFO data was firm yesterday and that suggests that it might not be all bad new from the pan-Europe Manufacturing PMIs this afternoon, with the Ukraine battlefield static and the natural gas payment issues sorted out for now. Services will have downside risks as the cost of living soars but if the PMI data has no horrible surprises, EUR/USD's recovery rally could receive another boost. Later today, Bank Indonesia will announce its latest policy decision. Having hiked at the last meeting, it is 50/50 whether BI raises by another 0.25 percent today. They may prefer to keep their powder dry for July and concentrate on supporting the economic recovery instead, especially if the palm oil export ban has taken some heat out of domestic inflation. The current account remains healthy, and USD/IDR has pulled back from recent highs, easing hiking pressures. China nerves persist in Asia though. China announced another package of fiscal measures to support businesses impacted by the Covid lockdowns. The CNY 140 billion (USD21.0 bio) of tax cuts doesn't add much when previously announced tax cuts and spending are factored in. China is persisting with targeted stimulus via fiscal measures, rather than easing monetary policy which threatens to increase leverage in the economy again, something they are trying to avoid. The jury is out on whether they will succeed but the torrent of financial institutions severely downgrading China GDP growth continued today. China equities are lower once again this morning, with the street nervous about much wider and tighter Beijing covid zero restrictions occurring. That seems to be the overriding theme driving China markets for now. On a final note, I have warned before that food nationalism was a worrying theme for 2022. Overnight, Malaysia announced a ban on chicken exports to bring down prices and increase stocks domestically. For context, Singapore gets 34.0% of its chickens from Malaysia and it is the most widely consumed meat there. That follows the Indonesia palm oil export ban, since lifted, and wheat export restrictions from India, combined with the agricultural export disruption from Ukraine and Russia. Food scarcity, or an unattainable price, especially for poor nations, will cause inflation to rise and cause social unrest much faster then rising oil prices. It will deepen the stagflationary pressures as well. We are likely to see more food nationalism this year and apart from being a growth headwind as consumer budgets are squeezed, it will be another reason not to get too excited about equities either. Asian equities ease once again on China worries. It was another rollercoaster session on Wall Street, with equities rallying powerfully as JP Morgan raised its income outlook and was upbeat ont eh US economy. The S&P 500 jumped by 1.86 percent, the Nasdaq rallied by 1.59, while the Dow Jones leapt 2.0 percent higher. Snap's downbeat forecast for this quarter saw its stock slump in aftermarket trading, dragging Meta with it. In what has become typical whip-saw price action these days, US index futures have slumped with investors having zero appetite for positioning moving against them. Nasdaq futures have slumped by 1.45 percent, S7P 500 futures are 0.85 percent lower, and Dow futures have fallen by 0.50 percent. Asia has shown a reluctance to blindly follow New York of late, with China concerns being a more existential threat. The fall of US futures has been followed by JP Morgan and UBS sharply downgrading China growth, while covid-19 cases remain stubbornly high by local standards in Beijing, prompting lockdown fears. That has seen Asian markets fall into the red today for the most part. In Mainland China, the overnight stimulus measures were forgotten as the Shanghai Composite falls by 1.10 percent, with the CSI 300 losing 1.15 percent. In Hing Kong, the Hang Seng is 1.35 percent lower. Japan's Nikkei 225 has eased by 0.65 percent, with South Korea's Kospi losing 1.10 percent, and Taipei falling by 0.70 percent. Singapore is just 0.15 percent higher, while Jakarta has jumped by 1.10 percent as markets price in no change in interest rates from BI later today. Kuala Lumpur is down 0.10 percent, while Bangkok has eased by 0.30 percent and Manila has retreated 1.0 percent lower. Australian markets are unchanged today. European equities will likely open a bit softer this afternoon, in line with the price action in Asia. Their fate will be dictated on the day how firm, or not, the pan-Europe PMI data is. As for New York, that really depends on how much coffee the gnomes of Wall Street decide to consume before work, it's that sort of market. US Dollar retreat accelerates. The US Dollar slumped overnight, losing ground against both the G-10 and EM space. That contrasted with a rise in US yields, but equities, bonds and currencies seem to be running their own separate races now. The catalyst was a hawkish blog post by ECB head Christine Lagarde who said rate hikes were on the way in the next few months. That prompted a massive rally by EUR/USD which spread to other currencies. The dollar index slumped 0.90 percent to 102.09, closing below support at 102.50. That should see the dollar index test 101.00 before the reality of a hawkish Fed reasserts itself. In Asia, China concerns have seen equities fall and some short-covering come into the US Dollar, pushing the index back up to 102.25. EUR/USD leapt 1.30 percent higher to 1.0690 overnight after the Lagarde comments. It has eased back to 1.0665 in Asia but has nearby support now at 1.0650. Initial resistance lies at 1.0700 and then 1.0750 followed by 1.0820, the multi-decade breakout line. A weekly close above the latter is needed to suggest a medium-term low is in place. I believe sustaining rallies above 1.0700 will be challenging though. GBP/USD coat tailed EUR/USD higher by 0.77 percent to 1.2585 overnight, easing to 1.2865 in Asia. It now has support at 1.2500, with resistance at 1.2600 and then 1.2650. Higher US yields have kept USD/JPY steady at 127.60 today with initial resistance at 128.00. We would need a large rise in US yields now to offset the weight of long USD/JPY positioning in the nearer term. Failure of support at 127.00 could trigger a capitulation trade potentially targeting the 125.00 support area. Once again, at those levels though, given the trajectory of US and Japan interest rates, being short becomes a dangerous game. AUD/USD and NZD/USD booked another night of gains, rising the sentiment wave 0.90% higher overnight. In Asia, China's nerves have seen AUD/USD fall 0.40% to 0.7080, and NZD/USD fall by 0.50% to 0.6435. Any rally above 0.7200 or 0.6500 will be challenging though as both currencies remain at the mercy of sudden negative swings in investor sentiment, especially from China. Asian currencies have rallied powerfully overnight, led by a 1.25 percent gain by the KRW, and 0.75 percent gains by the THB and TWD. Both USD/CNH and USD/CNY have fallen by 0.50 percent also overnight. Notably, the MYR and IDR had little to show for the US Dollar sell-off. China nerves have already reversed some of those overnight gains by Asia FX, highlighting the low risk appetite and fragile sentiment typifying currency markets and others now. USD/KRW has risen by 0.50 percent to 1264.50, making the Won the worst performer in Asia today. The recovery in Asian currencies has been led by stronger CNY fixings from China but is overall, a weak US Dollar story. A reassertion of risk aversion, or a jump in US yields, will have the recovery back to square one as quickly as it began. I believe Asian central banks will need to accelerate tightening to stave off medium-term weakness. Oil markets continue to slumber. Oil prices moved sideways once again overnight, trading in relatively narrow ranges as China growth fears cap the upside of prices, while the Ukraine conflict and the refined petroleum product supply squeeze in the US, support the downside. Brent crude finished 0.70 percent higher overnight at USD113.35 a barrel, with WTI unchanged at USD110.55 a barrel. In Asia, downgraded China GDP growth forecasts, and increasing worries about wider virus restrictions in Beijing has pushed oil prices lower. Brent crude has fallen 1.10 percent to USD112.05, and WTI is 1.25 percent lower at USD109.00 a barrel. Brent crude has resistance at USD114.00 and USD116.00, with support at USD111.50 and USD110.50 a barrel. WTI has resistance at USD112.00 and USD113.00, with support at USD108.00 a barrel. Overall, I am expecting Brent crude to bounce around in a USD111.00 to USD117.00 range this week. Gold grinds higher. Gold traded in a wide range overnight, probing above USD1860.00 as the US Dollar weakened, before retreating to finish 0.38 percent higher at USD1853.50 an ounce. A rise in US yields probably took the edge off the gold rally, balancing out the weaker US Dollar. In Asia, trading is moribund, with gold edging slightly higher to USD1855.00 an ounce. What is notable, is that gold has held up well in the face of US Dollar strength in the Asian session. The technical picture continues to remain supportive, and it seems only a marked US Dollar recovery will cap gold's rally. Gold took out resistance at USD1860.00 overnight but has traced out a double top at USD1865.00 an ounce which could be tough to overcome. That is followed by USD1885.50, its 100-day moving average. Support is at USD1845.00 and USD1840.00, followed by USD1832.00 an ounce. By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA Credit : OANDA Read more market analysts’ commentaries here

No Result