Asian central banks in spotlight
I will touch on the FOMC shortly, but first I felt it was worth dwelling on the Sage of Omaha and cloud-data company, Snowflake’s IPO yesterday. Mr Buffet’s investment company, Berkshire Hathaway, bought $250 million worth of stock in Snowflake’s IPO of $120.00 a share. They also bought another 4.04 million shares from another party at the IPO price.
By my rough reckoning, after Snowflake’s stock price rose 112% yesterday on debut, Mr Buffet made a paper profit of $820 million yesterday. Not bad for one day’s work. Berkshire Hathaway also bought 250 million Apple shares in March. The rest, as they say, is history.
Mr Buffet has been much derided for allegedly missing out on the tech boom, with many saying the world had moved on past the great man’s investing style. But I think that yesterday has proven, that although Mr Buffet is now 90 years old, when it comes to tech, Wazza is no Snowflake.
I won’t dwell long on the FOMC; readers will be drowning under a deluge of Fed research today. The FOMC pledged to leave rates unchanged until at least 2023, while reiterating they would let inflation overshoot their 2.0% target for some time. The FOMC also upgraded its GDP and employment forecasts but noted that part of its premise was more fiscal stimulus. Over to you, Washington DC.
There were no real surprises in the FOMC announcements, and it was somewhat surprising that equities had a weak session and the US dollar strengthened slightly. That may have been due to the US yield curve steepening after the announcement. But my most likely guess to explain the price action is that the market went into the FOMC long stocks (of course), short US dollars and long bonds. The price movements reflected the exiting of that positioning.
Lost in the Fed noise may be another reason for the nervous day’s price action. US Retail Sales in August rose by only 0.60%, well below the rise of 1.0% expected. Although it is only one month’s dataset, some disquiet over the US recovery could be setting in. With Washington, DC paralysed on the stimulus front, government cheques finished, Covid-19 rampant, along with hurricanes and forest fires, the US may have seen the best of its easy wins for the incipient recovery for now. The retail sales data may be the first sign that all those factors are starting to weigh and emphasises the urgency for Capitol Hill to get its act together.
With that context in mind, this evening’s weekly Initial Jobless and Continuing Claims will assume greater importance. Recent data suggest that Initial Jobless Claims have stalled at around 900,000, and Continuing Claims at 13.5 million. The street will be looking for falls by both this evening to renew recovery momentum. A rise in the headline initial claims, in particular, could increase nerves and see equities come under pressure and the US dollar continue to defy sceptics and rise further.
Today in Asia, we have a packed schedule with three central bank rate decisions. The Bank of Japan is first up and should announce sometime after 1100 SGT. We expect that coming so close after a new prime ministerial appointment, the BOJ will leave reference rates unchanged at -1.0%. Lower for longer and whatever it takes are likely to be trotted out of the central bank playbook again, but the announcement itself, should not be significantly market moving.
Taiwan will also leave rates unchanged at 1.125%, especially after the FOMC left rates untouched overnight. By far the most interesting with be Bank Indonesia’s (BI) decision at 1530 SGT. With Jakarta in Covid-19 lockdown once again, and Covid-19 rampant elsewhere forcing the domestic economy in deep recession, Indonesia is crying out for more rate cuts.
However, the direct monetisation of government debt by Bank Indonesia, and the government’s underwhelming response to the Covid-19 pandemic, has sapped investor confidence. That has pushed the Indonesian rupiah to 3-month lows, just below 15,000.00 to the dollar, forcing the central bank to intervene to cap the USD/IDR rise. With one eye on the currency and international investor confidence, BI will almost certainly leave its reference rate unchanged at 4.0%.
The US dollar short squeeze is continuing in Asia, with US equity index futures falling sharply this morning. Apart from weighing on local indices and supporting the greenback, it is likely to also weigh on both energy and precious metals prices in Asia. The US Jobless Claims will be the key to whether the move in Asia is merely corrective or the start of a more extended correction.