With Hong Kong and Australia closed today, as well as the UK this afternoon, and a number of secondary locations, it’s hardly surprising that Asian markets are calm today. The news for the weekend was relatively calm. Omicron cases are on the rise in the United States and Europe, and while markets have indeed taken into account a less virulent strain, disruption of goods and services due to worker isolation, including air travel , seems to be the main consequence so far. This is only likely to provoke nerves in the short term, as the story of the global recovery for 2022 is still on track. The divergence between Brent and WTI this morning can probably be put on this doorstep.
In China, industrial profits rose 38% (YTD) year-on-year in November from 42% for October, but well above the 34% forecast. Uncertainty in the real estate sector continued to dampen otherwise broadly strong data at the sector level. On that note, the PBOC said on Saturday it would protect the legal rights of homebuyers and provide greater support for the real economy. Targeted stimulus is a recent theme from China, as opposed to previous stimulus strategies. Reuters also reported that Evergrande had made progress in restarting house construction and that its chairman had announced that he would deliver 39,000 units in December. This batch of positive news, however, is offset by the increase in omicron cases in China, leaving the markets in a wait-and-see configuration.
Unsurprisingly, the data schedule around the world is pretty slim this week, especially for Level 1 releases. Headlines will continue to dominate intraday moves in limited trading. For Asia, the highlight will be Friday when China releases official manufacturing and non-manufacturing PMIs. The recent fall in industrial commodity prices is expected to boost manufacturing, while non-0 manufacturing appears vulnerable to the risks of declining consumer confidence and virus restrictions.
Otherwise, experience tells me that this week will be a feast or a famine, with little interval. Either the headline reel will spur ugly intraday moves on tight vacation cash, or the volatility will stay so flat that if it was an EKG, doctors and nurses would be calling code blue. In the meantime, thinking about how to make the most of leftover Christmas food can be a more productive course of action.
On a final note, I would like to highlight the passing of Archbishop Desmond Tutu over the weekend. I had the privilege of spending a few hours with him as part of my MBA in Cape Town in 2014. A formidable intelligence, a generous heart, a patriotic South African and a great sense of humor were my overwhelming impression. . I know because he made me stand in the corner facing a wall for a while because I’m a Kiwi, in penance for the All Blacks who beat the Springboks in rugby. He gave his heart to try to heal South Africa and gave more to society as a whole than he ever took. We need more people like him in the world. RIP Archbishop Tutu, it was an honor.
Asian stocks oscillate between slightly mixed and unchanged.
Asian stocks got off to a quiet start this week, with few concrete weekend drivers to boost price action, markets in Australia, New Zealand and Hong Kong closed, as well as the UK this afternoon. With reduced volumes on vacation, the Nikkei 225 is down 0.25%, while the Kospi is down 0.10%.
Mainland China is slightly in the green after positive headlines from Evergrande and the PBOC over the weekend, which are tempered by increasing cases of the virus. The Shanghai Composite is 0.18% higher and the CSI 300 achieved a gain of 0.05%.
Regionally, Singapore is unchanged while Kuala Lumpur gained 0.65% and Bangkok 0.20%. Taipei is up 0.86%, Manila is down 0.10% and Jakarta is up 0.15%. US futures rebounded today and are also experiencing a quiet session. Nasdaq futures gained 0.25%, S&P 500 futures 0.10%, while Dow futures are unchanged. It seems only bored Minnesota dentists are playing in space today.
Barring a big surprise, I expect Europe to follow roughly the same pattern this afternoon.
The US dollar trades sideways.
Currency markets are in vacation mode and will likely stay that way until the middle of next week. The dollar index barely changed from Friday at 96.11, marking three days of sideways trading. On the contrary, the US dollar seems vulnerable to positive headlines still on the virus front this week with support between 95.80 and 95.85, the important level to watch. Liquidity is further reduced in Asia due to several public holidays in regional centers.
Major currencies continue to tread with EUR / USD at 1.1320, GBP / USD at 1.3410, USD / JPY at 114.40, AUD / USD at 0.7235, NZD / USD at 0.6820 and USD / CAD at 1.2810. None of this has been much different since last Thursday. The return of US markets this afternoon and the gnomes of Wall Street should see volatility accelerate slightly tonight.
Asian currencies continue to trade as the Asian interbank market appears to have gone out of business for the year now. A stronger yuan continues to protect Asian currencies from negative sentiment changes.
The USD / TRY fell nearly 6.0% on Friday as central government intervention and effective lira value guarantees on retail savers’ deposits continue to play. However, the USD / TRY rose 3.50% today and the USD / TRY appears to be forming a base ahead of 10.0000 now. Turkish officials might find it harder to design further pound rallies from here, and I will be monitoring their foreign exchange reserves data in the future for more signals on when to re-enter short trade. ‘Erdogan.
Brent crude and WTI show a rare divergence.
Oil prices traded sideways on Friday due to low liquidity and low participation, with Brent crude declining slightly to $ 75.90 per barrel and WTI declining to $ 73.20 per barrel. In Asia today, however, we see a rare divergence in price direction. Brent crude rose 0.70% to $ 76.40, while WTI fell 0.65% to $ 73.20 a barrel.
I believe there are two different stories at play here to explain the price action. CNN reported this weekend, based on satellite photos, that Saudi Arabia was building ballistic missiles with help from China just outside Riyadh. The escalating arms race between Saudi Arabia and Iran is a good reason to buy Brent crude.
In the United States, hundreds of flights were canceled over the weekend due to staff shortages, with airline workers forced into self-isolation due to a Covid-19 infection, including omicron. A decline in travel equivalent to weaker economic activity in the United States is equivalent to a decline in WTI, the benchmark of US oil. The momentum is muted, however, and I doubt either story will have a lasting impact on oil prices.
Brent crude has resistance at 77.05 a barrel, its 100-day moving average (DMA). It has support at $ 75.70. WTI has resistance at $ 74.10, its 100-DMA, and support at $ 72.30 per barrel.
Hedging holiday risks drives up gold.
Pre-holiday risk hedging appears to have pushed gold up on Friday, up 0.27% to $ 1,808.50 an ounce. In Asia, volumes are subdued with gold rising another 0.13% to $ 1,810.80.
Gold’s attempts to stage a meaningful rally remain unconvincing, with traders cutting long positions at the very first sign of trouble during the day. It faces a double top around the $ 1,815.00 region which will be a formidable barrier, ahead of $ 184.00. Support is at $ 1,790.00 followed by $ 178.00 per ounce. $ 1,790.00 to $ 1,815.00 continues to be my call for the lineup for the week.
With the US dollar looking more vulnerable to positive virus sentiment right now, gold could potentially rise throughout this week, but I wouldn’t put my house on it to maintain those gains.