Vaccine hopes steady the ship

Financial markets jump on FDA Approval of J&J vaccine

A semblance of business as usual has reappeared this morning after another chaotic session in New York on Friday. US FDA approval of the one-shot Johnson and Johnson Covid-19 vaccine over the weekend has seen the global recovery trade reappear with a vengeance this morning. Equities, energy and commodities have jumped higher, as have the cyclical Commonwealth currencies. Even precious metals have found some friends today, while Asian regional currencies have moved higher as well.

With markets freshly vaccinated with the latest buy everything potion, they were able to shrug off a very mixed bag of China and pan-Asia manufacturing PMI’s this morning. China released official manufacturing and services PMI’s yesterday, which disappointed. The manufacturing PMI releases across the rest of Asia told a similar underperformance story with South Korea’s Balance of Trade showing surging imports and lower exports.

Much of the blame can be laid at the heels of the Lunar New Year break in February and rising commodity prices. On that basis, financial markets have given a pass mark to the data’s seasonal factors, meaning fall-out has swamped in vaccine news. Financial markets may not be as sympathetic next month if that trend is repeated. However, a month is a decade these days.

Australia delivered a mixed data dump this morning, with ANZ Job Advertisements rising strongly, along with home lending. Manufacturing PMI retreated but remained well in expansionary territory, with inventories flat after calculation methodology changes. The overall picture for the Lucky Country is that it remains lucky, and its recovery continues.

The week ahead, being the first of the month is a packed one from a data release point of view. The Reserve Bank of Australia and Bank Negara Malaysia have rate decisions this week. Both should remain unchanged but continue to uber-dovish in their respective statements, staying on message with their central bank brethren.

China’s annual People’s Political Consultative Conference and National People’s Congress occur on Thursday and Friday. I expect an explicit GDP target to be dropped again, emphasising self-reliance (notably in semi-conductors), domestic consumption, and green energy. Various Chinese officials are mumbling about rear earth elements this morning. With the Western world having outsourced rare earth refining to China because it is too polluting, in one of the dumbest nimby-ism strategic moves ever, expect comments in this direction to have more impact than the late week congresses themselves.

Europe, the United Kingdom and the United States all release PMI’s this week, starting with manufacturing today. The picture should be one of resilience in manufacturing, while services suffer due to Covid-19 interruptions. The US also releases Factory Orders, ADP Employment and Jobless Claims, all of which could outperform as California’s January lockdowns ended. The week culminates in the US Non-Farm Payroll data, with the street currently forecasting a gain of 140,000 jobs. Depending on the ADP data, that will likely change, probably to the topside.

Any or all of the US data could stoke the inflation fear trade again, and I note that the US House of Representatives passed the Biden USD1.90 trillion stimulus package on Saturday. It now moves to a much more challenging reading in the Senate, although the minimum wage hike’s dropping should ease its passage before the March 14th deadline expiry of the previous stimulus measures.

Stimulus noise has been blissfully quiet of late, and I’d frankly got sick of writing about it every day. That noise will amp this week as the bill hits the Senate. With a market suddenly nervous about inflation, USD1.9 trillion sounds inflationary to me, so don’t bet on the bill’s progress this week not having an impact.

The usual plethora of Federal Reserve Governors are speaking this week and will have their work cut out to stay on the dovish message. The headless chickens have been quiet today, roosting in the comforting coop of the J&J vaccine. Any of the US data points, the stimulus package, Fed governors or just itchy trigger fingers could let the inflation fox in. Don’t bet on the buy everything trade’s return today being a metaphor for the rest of the week.

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 as well as in leading print publications including 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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