OANDA Asia open: Somebody give me a Lyft | Daily Market Commentary with Jeffrey Halley
Lyft is perhaps the best metaphor for what I call the Emperor’s New Clothes syndrome that has infected markets since the 2008 financial crisis. Everyone can see the emperor was wearing no clothes, but no one was brave enough to say it, and the masses were content to keep the adjusted reality going as long as everyone did the same. Lyft collapsed another 10% overnight with investors fretting about its lack of profitability (losses) and its future prospects versus the much larger (and equally loss-making) Uber. You could probably throw in a USD24 billion valuation and the fact the shares listed carried no voting rights into the mix as well.
All of these “sudden” issues turning the unicorn from white to red were there in black and white before the IPO. Investors chose to ignore the lack of clothing in search of a quick buck and are now paying the price. That same lack of clothing adorns other potential upcoming unicorns/tech IPOs as well, which will attempt to cash out before their scorched earth business models kill the competition. Meanwhile, Levi Strauss, another recent IPO, saw its share rise nearly 4% yesterday. Its secret? Well, it did something amazing in this day and age – it increased profits.
Both the European Central Bank (ECB) and Federal Reserve (Fed) attempted their own reality-bending manoeuvres overnight. The ECB left overnight rates unchanged at 0% and were largely downbeat at the press conference. ECB President Draghi though, suggested the ECB still had plenty of tools in the monetary toolbox should a recession officially arrive. With overnight rates at 0% and having already committed 2.4 trillion euros (EUR) to quantitative easing with no discernible result, I beg to disagree.
The Federal Reserve Minutes tried to introduce some two-way volatility into the direction of the Fed funds rate, in a lesser version of the Draghi poker face. The Fed suggested rates could move either way going forward, depending on data. This is despite an official US inflation print of 1.90% overnight, above the expected 1.70% consensus. Fed funds futures called that bluff though and were unmoved by the Fed Minutes, pricing in cuts by year-end and into 2020. At least someone is trying to see those invisible clothes.
Equities mostly ignored the minutes with the S&P rising 0.35%, the Nasdaq jumping 0.69% and the Dow Jones up a more circumspect 0.03%. The dollar eased slightly as the dovish overtone saw investors move out of the greenback into more risk-seeking assets, and the Euro make back its early ECB-induced losses closing unchanged at 1.1270.
Currency markets continue to slumber with volatility remaining a distant mirage on the desert’s horizon. The dovish undertones from the overnight central bank releases saw the dollar weaken gently, which should translate into a positive start for regional currencies as the excitement plays out in the energy and equity markets.
Wall Street ignored the between-the-lines warnings by of a slowdown central banks, going back to its go-to strategy: lower rates equals higher equity prices. That should translate into a positive start to Asian stock markets, which will be content to follow North America’s lead on a very light data day.
That other great bastion of irrational exuberance, the energy markets posted another strong day, with Brent Crude jumping 1.45.% to USD71.65 a barrel and WTI rising 0.73% to USD64.45 a barrel. Brent outperformed as OPEC reported the world had moved to a structural oil defect following their production cut efforts and sanctions on Iran and Venezuela. That remains to be seen in my opinion but for now, trying to pick a top in oil is the equivalent of being run over by a bulldozer. Both contracts are massively overbought on an RSI basis and the correction, when it comes, could be ugly.
Gold’s comeback continues as the yellow metal rose 0.30% to USD1,308.00 an ounce, supported by dovish central banks and a weaker dollar. The rally still remains tentative with key support remaining at USD1,280.00 an ounce.