China Leaves Rates Unchanged. Japan Machinery Orders Rebound

Asian equity markets are flat to slightly positive this morning after Japan Machinery Orders staged a strong rebound from last month, and China left both it’s one and five-year Loan Prime Rates (LPR) unchanged. Overnight, Wall Street gave back some of its previous day’s gains after an article on Stat News, a biotechnology and medical news website, cast doubts on the validity of the data produced by Moderna yesterday regarding their COVID-19 vaccine.

Regarding the overnight story, Stat News rightly points out that the sample size of 8 trials was open to various bias, such as age and gender, and was rather small. Something I had mentioned yesterday. However, the article itself, is perhaps a bit harsh on Moderna. The company has filed its data via official channels and to have exaggerated or misrepresented it would have been illegal for a multi-billion listed company, or any company for that matter. Nor was the trial for the effectiveness of the vaccine, instead it was to test dosages to produce anti-bodies and to monitor for side-effects. That reality, most likely limited the falls in equities on Wall Street overnight and Asia this morning.

The underlying momentum of the peak-virus trade remains intact for now, even if one disagrees with the divergence of hope versus reality by financial markets. The overnight retreat looks more of a corrective profit-taking nature than an abrupt change of direction. With a light data calendar ahead for Asia now, markets in the region will probably content themselves with “bubbling under” until Europe arrives.

Equities are mixed in the Asia-Pacific region today.

Japan’s Tankan underperformed this morning, but its machinery orders staged a rather spectacular revival from last month. That appears to have propelled the Tokyo higher this morning, with the Nikkei 225 rising 0.70%. South Korea has announced the creation of a special fund to purchase corporate bonds which gave support to the Kospi today; it has risen 0.40%.

Elsewhere the picture is more mixed, if sedate. Mainland China’s Shanghai Composite and CSI 300 are 0.25% lower, with the Hang Seng easing 0.20%. Singapore’s Straits Times has fallen 0.30%, with Australia’s All Ordinaries falling 0.20%, and the ASX 200 falling 0.50%.

Asian stocks look content to trade in a modestly negative range today, as traders book profits after the recent strong rally, awaiting further direction from Europe and the United States.

Currency markets are becalmed.

The negative news surrounding the Moderna COVID-19 vaccine saw equities fall overnight, and that took the edge of the US Dollar’s recent retreat. However, ranges remained modest, with the US dollar index was almost unchanged at 99.40.

In Asia, the US Dollar has gained modestly against regional currencies but has retreated slightly against the Euro, AUD and NZD with USD/JPY unchanged from the New York close. The profit-taking tone is likely to result in further small losses by the regional currencies today, but the underlying theme of global recovery remains intact.

Oil closes almost unchanged following the June WTI expiry.

The WTI June futures expiry passed without incident overnight, much to the relief of many. Oil rallied strongly initially overnight, with WTI higher by over 8.0% at one stage, but beat a hasty retreat later in the New York session, as the Moderna vaccine trial criticism hit the streets. Despite that news oil held onto to its previous day’s gains. Brent crude finished the day down 0.90% at $34.50 a barrel. WTI managed to still close 1.70% higher at $32.50 a barrel.

The US API crude inventory data, released very late in the New York session, was supportive. Inventories falling by 4.80 million barrels, suggesting that slowing US shale production and an increase in consumption are finally reducing the glut. Asia though seems content to play wait and see, with both contracts unchanged today. Overall, despite the setback later in the overnight session, oils price action remains constructive.

Gold fails at resistance, but dips are shallow.

Gold had a somewhat directionless session overnight, with the equity retreat propelling it higher by 0.70% to $1745.00 an ounce. Notably gold has still to record a daily close above $1750.00 an ounce, which would trigger a technical buy signal. That said, dips are increasingly shallow, and seem limited to $1725.00 an ounce now.

The converging range suggests that a more substantial move by gold is imminent. Which direction that will be though, is not yet clear. Continued strong momentum in the peak-virus recovery trade could again derail the hopes of gold bulls, with a break of $1725.00 an ounce opening up a much larger downside correction. I am content to watch from the side-lines at these price levels and wait and see which way the penny falls.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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