Oracle and TikTok. Good deal or No deal?
Asian investors look set to return to US index futures, after a resolution of the Oracle/TikTok deal. Why is that? And will it last? This is what Jeffrey Halley, Senior Market Analyst at OANDA Asia Pacific says.
Asia goes back to the Futures
Asia looks set to go back to the futures again this morning, in this case, the US stock index futures, to offset a negative finish by Wall Street on Friday night. Yet again, the S&P 500 e-mini, Nasdaq and Dow Jones futures have risen in Asia, after a negative finish in New York, sparing the region from worst of the Wall Street blushes. All three have climbed this morning strongly, with the S&P 500 and Nasdaq up over 0.50%.
The chief reason behind the rally was preliminary US Presidential approval of the Byte Dance/Oracle deal, and the US courts overturning a suspension of the US app store ban on WeChat and TikTok, due to go into effect yesterday. Looking at the details of the Byte Dance deal, frankly, it looks terrible for the US., with Byte Dance retaining 80% of the international entity. It will raise questions as to why the US Government bothered in the first place, with the answer likely being to score a win before the US election.
Whichever way you cut it; it removes a potential source of US/China tension in the short-term. In 2020, that’s as good a reason to buy everything as any other I’ve seen this year.
The week ahead is a barren one on the data front around the globe. China had just released its one and five-year Loan Prime Rate decisions, with rates remaining unchanged as expected. That is entirely consistent with their intention to stimulate the economy as needed in a much more targeted way and attempting to avoid another explosion in asset prices such as we saw post the GFC. The cupboard globally is now bare until US Durable Goods at the back end of the week.
That means we are likely to see a tail-chasing headline-driven market this week with news stories being fitted posthumously to market moves, to explain them. Activity is expected to be muted in Asia today anyway, as Japan enters two days of national holidays. Today is Respect for the Aged Day. Although I am not Japanese, I intend to remind my two Millennial’s on their “devices” that they must laugh at all my jokes today.
China Equities Byte Dance Higher in Asia.
Wall Street sagged on Friday, with the S&P 500 falling 1.07%, the Nasdaq falling 1.07%, and the Dow Jones easing 0.90%. However, the Presential decision on TikTok over the weekend has seen US futures Byte Dancing into the green today, which is holding regional bourses steady in early trading.
Japan markets are closed, but the Kospi has risen 0.20%. Mainland China though has grasped at the weekend TikTok news, sending the Shanghai Composite and CSI 300 leaping higher by 2.0% on the open. The rest of the Asia Pacific is circumspect, with Hong Kong down 0.60%, and Singapore and Sydney unchanged.
The TikTok agreement, should it pass in its current form, is a massive win for Byte Dance, and should continue to buoy Chinese markets and US futures today. The feel-good factor will likely fade across the rest of the region as another US/China geopolitical sigh of relief fades. Much will depend on whether the US stock index futures can hold onto their early Asia gains, much as it has for the past three sessions.
The US Dollar eases in Asia.
The Byte Dance decision and the follow-on performance by US stock index futures this morning has lifted sentiment, leading to a slightly weaker US Dollar as the week starts. However, except for USD/JPY, the G-10 currency grouping remains in range-trading no-man’s land.
Currency trading volumes will be muted by the Japanese holiday today, but USD/JPY has fallen 25 points to 104.35 this morning. Having broken long-standing support around 105.00 last week after a lower for longer FOMC, USD/JPY is now just above its 6-month low at 104.20 and could target 103.00 this week. EUR/JPY also broke support at 124.20 last week and has fallen to 123.75 this morning. That has activated a head and shoulders formation on the EUR/JPY chart, which has a target around 122.00, also its 100-day moving average (DMA). EUR/JPY’s breakout should temper any exuberance on EUR/USD amongst the pro-cyclicals. EUR/USD still has the potential for more downside corrective price action despite the positive tone in currency markets this morning.
Asian currencies continue to outperform, boosted by a dovish FOMC, robust China data, and now the Byte Dance decision. The CNY, THB, PHP and SGD, KRW and TWD all between 0.20% and 0.30% higher versus the greenback this morning. With a quiet data-week ahead, the sentiment is likely to continue to favour the pro-cyclical Asian currencies over developed market currencies.
Libyan return swamped by Hurricane concerns.
Oil prices have risen in Asia this morning as the US Dollar weakens slightly, with concerns about Hurricane Beta in the Gulf of Mexico, swamping the apparent restarting of mothballed production in Libya. That followed a sideways session on Friday, where both Brent and WTI faded slightly into the end of the week.
In the grand scheme of things, even a return of full Libyan production, unlikely as that is, is an insignificant amount for international markets. It, unfortunately, comes as oil markets are awash with black gold from OPEC+, with a still weak consumption outlook. The threat of the return of large scale Covid-19 lockdowns in the UK and Europe will further add to the gloom.
Oil’s rally has been propelled by production and refining concerns in the Gulf of Mexico states of America, and not by a structural change in the consumption picture for the better by the world as a whole. As such, the rally could quickly fade if Hurricane Beta passes without much incident.
Brent crude has risen 0.50% today to $43.30 a barrel but faces resistance at its 50 and 100-day DMA’s at $43.70 and $44.20 a barrel. Support lies at $42.50 a barrel initially. WTI has climbed 0.80% to $41.25 a barrel today on hurricane fears. That has given it a better technical picture with a break of the $41.50/$41.80 resistance zone opening potential gains to $44.00 a barrel. The rally though is entirely dependent on the Hurricane Beta situation. Support lies at its 200-DMA at $40.10 a barrel.
Gold continues to consolidate in a contracting range.
Gold rose slightly on Friday and has eked out a 0.15% gain to $1953.00 an ounce this morning on a weaker US Dollar. Gold though, remains in range-trading mode, with resistance at $1975.00, and support at $1935.00 an ounce.
Gold’s range over the past month has slowly but surely been contracting, suggesting that a breakout is coming. Unfortunately, the charts do not hint at which direction that will be. Gold appears to be in a triangle consolidation with support at $1905.00 an ounce, and resistance today at $1965.00 an ounce. Although the top of the triangle is closer, gold lacks momentum, and the potential for a false upside break is high.
With a light data week, headline-driven trading, with the inevitable tail-chasing by short-term players is almost certain to continue. Longer-term players should probably stay away and wait to see how the situation resolves.