The noise continues

The noise continues in financial markets, which are wasting a lot of energy vacillating between global recovery hopes and asset bubble fears this week. The US bond tantrum has introduced some long overdue two-way price action into the nearly one-year unidirectional buy-everything rally. That state of affairs is likely to continue as markets learn to live with the prospect of higher interest rates and steeper yield curves, driven by the higher input price side of the global recovery equation.

Central banks generally remain “on message,” releasing as many doves as possible, rightly concentrating on the fragility of employment due to the pandemic. Across the world, employment remains very much on fiscal policy life support, for those countries that can afford it, and some who can’t. In Asia, including China, domestic demand remains cautious, even as the manufacturing/export sectors boom. There will be limits as to how far that can recover while international borders remain closed.

One notable exception is China’s top banking regulator, Guo Shuqing. Mr Guo’s comments yesterday about bubble concerns in China property and the US and European equity markets were enough for nervous equity markets to reverse part of Monday’s impressive gains.

Asian equities rise on Aussie GDP, US stimulus bill

Such is the nature of the financial markets at the moment, though, that those comments have been quickly forgotten today. Asian equities and US index futures are rallying strongly today after an impressive Australian GDP print stoked the recovery fires again. Helping along in the background was the progress of the US stimulus bill to the Senate, and President Biden announcing the US will have enough Covid-19 jabs to vaccinate all American adults by the end of May. Thanks in part to a tactical shot of Federal money allowing J&J’s arch-rival Merck, to start manufacturing J&J’s one-shot Covid-19 vaccine simultaneously.

Inflation fears have ebbed temporarily after Eurozone Flash Inflation eased in February. For February, China’s Caixin Services PMI came in lower at 51.50, although that will be due to Lunar New Year distortions. Japan’s Jibun Bank Services PMI remained steady at 41.20. The markets are also pricing in the certainty that OPEC+ will ease production cuts this week, keeping pressure on oil prices, a significant source of the input price rises in recent months.

So, for now, the inflation genie has popped back into its bottle, allowing Asia to get back to buying equities. I doubt the little fellow will stay in there for long, though, especially with US ADP Employment, the ISM survey and Non-Farm Payrolls to come this week. All are likely to surprise to the upside. Let’s not forget the capacity of OPEC+ to surprise as well.

But that will be tomorrow’s story, just as the global recovery was Monday’s story, and bubbles everywhere were yesterday’s news. Today, the inflation demon has been slain, and it’s buy-everything business as usual. March may leave us all a bit deaf.

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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