OANDA Asia open: Champions retain their titles | Daily Market Commentary with Jeffrey Halley
It was a weekend where title challengers’ hopes were dashed on the electoral canvas following election results from Australia and India. India’s month-long 900-million-voter election came to a close with exit polls indicating that Prime Minister Narendra Modi’s BJP has retained power. The most stunning win though was reserved for Australia, where Prime Minister Scott Morrison’s Liberal-National coalition defied two years of polling and won the Australian federal election. It has given a welcome early boost to the beleaguered Aussie dollar (AUD) and the Australian Stock Market (ASX).
Elections will still be very much to the fore this week as Europe heads to the polls for its European Parliament elections, which will include the British. Austria’s government effectively collapsed at the weekend following an alleged corruption scandal. Nervousness over the potential advance of populists in the voting will give the European elections an unusually sharp edge and will likely keep the euro (EUR) capped. UK Prime Minister May’s “new” offer to unlock the Brexit logjam appears to have been leaked and doesn’t seem to be new at all. Business as usual in the United Kingdom this week.
President Trump kept up the rhetoric over the weekend, threatening Iran with destruction should they attack the US. On his Eastern front, Huawei continues to be squeezed after being black-listed by the US government, Reuters reported that Google would withhold vital applications and Android technology to Huawei as well. In Jeddah OPEC’s impressively titled Joint Ministerial Monitoring Committee (JMMC) kicked the prospect of OPEC+ quote changes down the road to the 25 June meeting, happy for now to run down inventories in stock rather than open the oil spigots.
Singapore’s balance of trade and non-oil exports continued to deteriorate on Friday, indicating dark clouds for countries with high exposure to the China economy and world trade. However, Japan has surprised this morning where preliminary GDP readings have impressively outperformed. Year-on-year growth rose 2.1% against a consensus of -0.1%.
This perhaps highlights the fact there will be winners and losers – aside from China and the US – as their trade war continues. This also highlights the fact that geopolitics continue to play its part and produce surprises. These will continue to drive volatility and keep investors in a defensive posture as fragile sentiment continues to wobble stock and energy markets while supporting the mighty greenback.
India’s markets won’t open for a few hours yet, but Australia wasted no time, with the AUD opening 1% higher in twilight-zone trading this morning. The initial low liquidity flurry has waned, but the Aussie dollar is still 0.55% higher at 0.6905 as I write. The critical question will be whether the AUD can maintain the comeback, or will global trade fears see it returning to business as usual as a China proxy. I am inclined to err to the latter.
The British pound (GBP) is clinging to the 1.2720 region following constant selling pressure on Brexit fears last week and the prospect of Brexit party candidates sweeping the UK European election seats this week in a potentially stunning rebuke of Parliament. With so much lost hope factored into the GBP in the short-term – and given Australia has just proved political miracles can happen – a Theresa May rabbit from the hat could set the pound up for a mighty rebound.
Wall Street fell on escalating trade concerns on Friday with tech-heavy Nasdaq singled out for special attention, falling 1.04%. Australia’s ASX 200 though, has stopped the rot and is currently up 1.40% following the weekend election results. Aside from reinforcing the obvious lesson – you don’t fight elections on a manifesto of tax increases – it will be interesting to see if the rally is structural or whether trade tensions mean it quickly fades.
The Japan Nikkei 225 is riding the GDP tailwinds as well, rising 0.45% this morning. It’s likely India’s equity market will outperform on the preliminary exit polls when it opens later today too.
The positive start in Asia should give some comfort to regional markets as they open today, although it may not be enough to drag China, Taiwan and Hong Kong into the green.
WTI has risen by 1% to USD63.40 a barrel in early electronic trading. Brent, which opens shortly, should also move higher and it follows OPEC’s weekend guidance that they were going to concentrate on reducing inventories rather than production.
The apparent unity of the OPEC+ in Jeddah, combined with escalating tensions in the Middle East, should see both Brent and WTI continue to trade on a firm footing in Asia today.
Friday’s robust US Consumer Sentiment data and a strong US dollar combined to crumple the nascent gold rally last week. Gold fell USD9 to USD1,277.70 an ounce, with its combined two-day sell-off wiping out almost all of May’s rally. Describing gold’s performance as poor would be an understatement. It’s up by the stairs, down via the 10th-floor window price action is now a serious concern.
The double bottom on the charts at USD1,265.00 is now critical support that must hold. A daily close below that region implies a much deeper correction could be imminent.