Asia gets Ants in its Pants
Asian equity markets are starting the week on a sour note after a negative close on Wall Street. Typhoon Chanthu is bearing down on Shanghai, forcing the closure of schools, ports and flight cancellations and may mute activity on Mainland markets today. Grabbing attention, though, is a Financial Times story stating that China’s government intends to break up Alipay, owned by Ant Group. Shares in Alibaba Group Holdings, listing in Hong Kong, have opened substantially lower, taking the Hang Seng with them. As I said last week, buying the dip in China equities in this environment remains akin to catching a very sharp falling knife.
Cryptos have edged lower today, following South Korea’s Financial Services Commission announcing a September 24th deadline for local and foreign crypto exchanges to register as local legal entities. The process involves partnering with a local bank, which, unsurprisingly, are reluctant to do so. The intention has been out there for a while, but a hard deadline announcement seems to have delivered a reality bites moment. Bitcoin is down 2.15% as I write, and the technical picture is starting to look concerning. A daily close un $45,000.00 targets a fall to $35,000.00. Before the perpetual mega-bull haters start, a close above $46,500.00 invalidates the formation.
The week’s data calendar is a bit thin globally, meaning we are probably destined for another choppy week of gyrations based on the intra-day themes of the day. Today’s theme suddenly appears to be inflation once again, with yet another Fed President taking tapers sooner rather than later. Nobody cared last week when talk like this emerged, but it’s a slow news day today, and the low attention span FOMO gnomes need “something” to concentrate on.
India releases WPI Inflation later this evening, which should show inflation hovering near its 6.0% target. But it is “big” Wednesday that looms as Asia’s highlight. It features Japan’s Balance of Trade and China’s Industrial Production, Retail Sales and Fixed Asset Inflation. India releases its Trade Balance and Indonesia its Trade Balance and Consumer Confidence. China’s data will obviously be under the brightest spotlight, with nerves rising that its economic recovery is slowing. A soft Retail Sales number heighten those fears and will likely see another fall in local equity markets.
The US releases August Inflation and Core-Inflation tomorrow evening, Industrial Production on Wednesday, and Retail Sales on Thursday. A print well above 0.50% MoM will have tapering chatter rising once again in a slow week, but this FOMC ain’t for moving this month after the Non-Farm Payroll shocker. I want to remind everyone the Fed has a twin mandate, not a singular one. The US Retail Sales is arguably more important. A soft number will have the delta-nerves increasing and some hand wringing about the US recovery. That will probably have the short-term FOMO gnomes then mulling a delayed Fed taper. I told you it was a slow news week.
Things get much more exciting next week. The Canadian election is on Monday, and the daughters and Mrs Halley will be gutted if Justin Trudeau loses because he is so good looking. That, to be fair, is a much deeper analysis than a lot I see these days by short-term markets to justify moves in asset prices.
More importantly, we have an FOMC meeting next week. Despite the increasing noise from Fed officials, I expect no taper announcement, although they may signal its game-on for the November meeting. We also have a plethora of other central banks announcing policy decisions. Japan, Indonesia and the Philippines in Asia, the United Kingdom, Switzerland, Sweden, Norway and Brazil. It’s not an exhaustive list; I’ve probably missed some. China also announces its most later Loan Prime Rate decision.
Unfortunately, this week looks like another “wait-and-see” affair. It’s usually good for intra-day volatility but bad for those with a time-horizon over 24 hours long, as the markets flip-flop between opposing themes daily. In the spirit of wait-and-see, this week could be a good one to watch from the side-lines.
Asian equities start the week lower.
Wall Street finished the week on a sour note, with all three major indices closing lower in what was when all said and done, a bull-market correction in a slow week. We could be in for much the same this week ahead of a mouth-watering last week of the month and quarter. The S&P 500 closed 0.77% lower, as did the Dow Jones, while the Nasdaq retreated by 0.87% lost an App Store case. In the spirit of noisy range-trading, futures on all three have jumped in Asia on no news at all, defying the negatively in Asia. S&P 500 and Dow futures are 0.30% higher, with Nasdaq futures up 0.12%.
The Nikkei 225 has unwound early losses in Asia and is now down just 0.05% as stimulus hopes and bullish retail investor momentum rule the roost. Similarly, the Kospi is now down just 0.05%. Typhoons and the Ant Financial break up story are weighing on China markets today, notably the Hang Seng where Ali Baba is listed. The Hang Seng has plunged 1.75%, while the Shanghai Composite is flat, and the CSI 300 is 0.40% lower.
Singapore has slumped by 0.85%, with Taipei 0.25% lower and Kuala Lumpur falling 0.70%, despite the Government and Opposition tentatively agreeing on party reform measures over the weekend. Bangkok is unchanged, with Jakarta falling 0.55% and Manilla lower by 0.15%.
Australian markets are bucking the trend as M&A fever saw a higher offer for an attempted takeover of Sydney Airport today. The ASX 200 and All Ordinaries are 0.25% higher.
With a lack of strong directional drivers, Hong Kong aside, the rally in US index futures has taken the edge of early losses in Asia. Asian markets ex-Hong Kong are likely to continue to claw back earlier losses as nerves subside. I expect Europe to open flat this afternoon.
Currency markets continue to range.
In a week loud on noise but thin on substance, currency markets ranged noisily last week. I expect more of the same this week, with things becoming more exciting next. US yields rose slightly on Friday, enough to lift the dollar index 0.13% higher to 92.64, where it remains in Asia. A 92.30 to 93.00 should contain the noise this week.
EUR/USD has edged lower to 1.1805 this morning after testing and failing at 1.1850 on Friday. Failure of 1.1800 could extend losses to 1.1750 this week 1.1750 to 1.1850 should contain. GBP/USD is almost unchanged at 1.3845 from Friday and looks to be mid-range between 1.3800 and firm resistance ahead of 1.3900.
Likewise, AUD/USD and NZD/USD closely barely changed on Friday, rising slightly to 0.7355 and 0.7110 today. Failure of support at 0.7345 for AUD/USD could extend losses to 0.7300, but NZD/USD looks well supported ahead of 0.7080. Both Antipodeans are well-placed to benefit from any quick rebound in risk sentiment this week, having weathered the worst of Covid-19 for now with markets, if not domestically.
USD/JPY remains firmly anchored in a sideways 109.50 to 100.50 range, as it has been for almost a month now. I am not taking my feet off the table or putting down my book until either 109.50 or 110.50 breaks on a daily closing basis.
That taper-talk has seen Asian FX edge lower today as the procession of neutral PBOC USD/CNY fixes continues, giving no alternative narrative for now. USD/KRW has climbed 0.40% to 1174.50 today after North Korea test-fired a cruise missile over the weekend. Such Pyongyang sell-offs are usually short-lived these days, and rightly so. USD/IDR, USD/MYR, USD/SGD and USD/THB are all 0.10% higher today, but Asian FX looks as adrift as the G-10 right now. I expect the non-descript range-trading to continue for the rest of the session barring a newswire surprise.
Oil prices spike higher.
When one looks back at oil’s price volatility over last week, what stands out is the short-term gnomes rush from one side of the range to the other on a daily basis. So, despite a lot of intra-day noise, prices really went nowhere last week. Friday was much the same, the rally almost exactly unwinding the falls of the day before as the theme of the day became Hurricane Ida disrupted US production, despite no one really caring the previous session. Nobody is better at fitting the most esoteric news stories to fit/justify the price action than oil markets.
Brent crude rose by 2.13% to $72.85 on Friday, with WTI climbing 2.40% to $69.60 a barrel, cancelling out Thursday’s price drops. Things have got a little more interesting in Asia with oil rising once again today, perhaps driven by the North Korean cruise missile test or news that Russia is struggling to raise production to meet its OPEC+ quotas. Either way, Brent crude is 0.40% higher at $73.15, and WTI is 0.55% higher at $69.95 a barrel. The latter may also be getting some post-Ida tailwinds.
Although it would not surprise me in the least if oil prices unwound their gains later today, with looking bid-at-the-top and offered-at-the-bottom oil’s Modus Operandi at the moment, today’s rally in Asia could potentially change the technical picture.
A rise by Brent crude through $73.70 a barrel could signal the rally has legs and target gains to the $76.00 a barrel area. Support is $72.70, followed by a big hole to $71.00 a barrel. Similarly, if WTI rises through resistance at $70.80, its rally could extend to $74.00 a barrel in the coming days. support is at $69.60, followed by a very little until $67.60 a barrel.
Gold nervously steady.
Gold continues to range between $1780.00 and $1800.00 an ounce, with a slight rise in the US Dollar on Friday, pushing it 0.38% lower to $1787.50 an ounce. Another directionless session in Asia has seen it creep 0.23% higher to $1791.60 an ounce.
Gold’s price action continues to be seriously underwhelming, unable to rally when the US Dollar falls and moving lower when it rises. Gold needs to recapture and hold above $1800.00 an ounce this week, preferable $1830.00, to soothe the nerves of nervous long-positions.
The balance of probabilities is increasing, though, that gold has more downside ahead. A daily close below $1780.00 opens further losses to $1750.00 an ounce. Failure of the latter could see gold fall as low as $1700.00 an ounce. Resistance in the $1800.00 to $1805.00 an ounce area continues to cap insipid attempts at recovery.