Deep freeze

US futures higher, dollar loses ground

US markets were closed for a public holiday overnight. That was probably no bad thing as rolling blackouts swept parts of the US due to unnaturally cold weather sweeping the country, notably Texas. The blackouts themselves pushed up spot electricity prices into an orbit that would make Elon Musk proud. It also took around 1 million barrels of oil production offline and closed refineries in the Lone Star State.

Against that backdrop, oil prices held onto their Asian session gains and oil markets are likely to ignore the very overbought technical indicators until the sunshine returns to the US. Oil futures have moved deeper into backwardation (a bullish indicator for prices), and any correction when it comes, is likely to be short-lived unless the curves flatten.

Elsewhere, industrial metals remain firm suggesting that the global recovery trade has yet to suffer any new-variant Covid-19 wobbles. Copper, nickel, aluminium and tin remain at recent highs, with platinum climbing 2.20% in Asia today, following a 4.0% gain yesterday, indicating a massive pent-up demand for catalytic converters is coming.

The US President’s Day holiday didn’t stop the futures on the S&P 500, Nasdaq, and Dow Jones, from each adding over 0.40% yesterday and bodes well for the reopening this afternoon. On currency markets, the US dollar remained under pressure, with the dollar index testing support at 90.25, with the pro-cyclical Commonwealth currencies (those countries ruled by our Majesty Queen Elizabeth), and regional Asia the prime beneficiaries.

Probably the only warning sign at the moment to the buy-everything global recovery trade comes from USD/JPY, which has bucked the sell dollar trend and risen from 104.50 late last week, to 105.60 this morning. The primary driver is a firming of US yields on Friday with the 30-year edging above the 2.0% mark. Everything I have described above is inflationary, although until international borders reopen and people can move around again, not excessively so. The panic of a return to 70’s style inflation is overdone; inflation has been missing in action for the last 20 years and will remain so in a globalised economy. Nevertheless, if the US 10-year grinds towards 2.0% in the next few months, it will give the dollar sell-off and the equity rally food for thought.

There are certainly no signs of inflation this morning in Asia, with South Korean import and export price data firmly anchored in negative territory. The RBA minutes also stated that the economy would need “very significant” monetary policy support for some time to come. Indonesia’s trade balance yesterday was flattered by falling imports, suggesting flat demand and a trend showing no signs of reversing soon. Domestic demand across Asia (including China), remains muted, even as the manufacturing/export sectors continue to recover.

Singapore releases its “Emerging Stronger Budget” for 2021 today. Having thrown money at the Covid-19 recession in 2020, government largesse will remain expansionary in 2021, but on a less biblical scale. Support will be much more targeted, emphasising retraining and upskilling the workforce, and continued support for tourism and aviation sectors. Other sectors of the economy will find the goodie bag empty, which may see banking and property stocks come under some short-term pressure, along with retail.

Germany releases its ZEW Economic Sentiment Index this afternoon, which will be the highlight of the European session. It is expected to show lockdown fatigue, something prevalent in EU data of late, with the Eurozone well behind the curve on the vaccination front. By contrast, UK markets should continue to outperform as the rapid vaccination pace has markets scrambling to reassess Britain’s recovery outlook.

The data calendar is bare in the United States today, where the big chill will probably knock stimulus-watch off the front pages. Nevertheless, Wall Street should come into the office remotely in full stimulus and vaccine-led recovery mode. Keep buying everything.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is 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, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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