Lots of moving parts, including ships!

BREAKING NEWS: Inchcape Shipping Services report the Ever Given has been successfully refloated. Twitter link here….



Market’s eyes on heavy data calendar, Suez Canal jam

The week will be a busy one for financial markets, with lots of moving parts as a new month starts. One part that refuses to move is the Ever Given container ship; it moved slightly over the weekend but is still refusing to budge and continues to block the Suez Canal. The knock-on effects are still reverberating through world trade, and account in no small part for the rise in oil prices on Friday.

Wall Street held its own on Friday despite reports of large-scale stock liquidations by a distressed family office. Asia appears to have shrugged that of this morning, content to follow the underlying positive finish and after China Industrial Profits were released over the weekend. The 179% YoY gain was flattered by China’s lockdowns at the same time last year. However, compared to the 2019 data of the same period, it still shows an impressive gain. That sets up China’s official and non-official PMIs to put on a solid showing later this week.

That should allow mainland markets to shrug of delisting fears in the US of China stocks that weighed on markets last week. It should also assuage the geopolitical tensions and reprisals against foreign companies that have criticised Xinjiang cotton and China’s decision to start collecting punitive duties on imported Australian wine. Neither in isolation is a significant issue in a global context, but together show a pattern of increasing militancy and belligerence to companies and countries who do not stay “on message” with China’s Communist Party rulers. For many international companies and governments worldwide, doing business in China will get more challenging, not less.

The UK releases GDP mid-week, and Europe releases PMI data, but the Covid-19 spat will continue to overshadow both. Key economies in Europe are also facing more Covid-19 restrictions as the Easter holidays approach at the end of the week. With the EU enacting a vaccine export ban and the members squabbling amongst themselves, and with the UK, on who gets what. That issue and its implications for the Europe/UK recovery will cast a shadow over the euro, sterling and regional equities this week.

Asia also sees the releases of a raft of PMI and trade data this week, which is expected to highlight that the export-led sectors are continuing to power ahead. At the same time, domestic demand (possibly ex-China) remains sub-optimal. India is also set to restrict vaccine exports as Covid-19 cases explode there. With the US and Europe hoarding vaccines (the US paid for developing some of them, so fair play to them, I should add), Asia’s domestic recovery may be somewhat delayed. Rollouts are proceeding at a snail’s pace across much of Asia, and definitely Australasia.

As ever, the US will grab most of the attention, and this week has some significant event risk. On Wednesday, President Biden will unveil the first concrete details of the USD3 trillion Build Back Better programme, or BBB as I describe it. That may be the United States credit rating in places after paying for everything. Increased taxes on corporate and high-earners will help pay for some of it, but there is no doubt that more debt issuance is on the way. US yields crept higher on Friday and may potentially spike again come Wednesday.

That may lead to more US dollar strength and renewed rotational flows on stock markets (read, sell tech). China held the daily USD/CNY fix at near unchanged levels today to relieve most of the rest of Asia. With a packed US data calendar that could well outperform, and more spending from President Biden, rising US yields leading to a rising US dollar could see China’s USD/CNY fixes march higher. Asian currencies, with their Yuan event-horizon, and dirty pegs to the US dollar, could finally take fright this week.

The US also releases ADP National Employment, ISM Manufacturing and US Non-Farm Payrolls in the second half of the week. All should outperform handsomely as the US recovery accelerates, and that could increase the chances of a bond tantrum, US dollar strength and Asian currency woes. The risk correlated Australian, New Zealand and Canadian dollars used as a proxy to the dirty peg Asian currency universe are also poised to suffer more.

Friday’s Non-Farm Payrolls are expected to rise by over 600,000 jobs, but I wouldn’t discount a 700K+ print. Friday is Good Friday, and all of Europe will be closed as well as the UK. Market liquidity, or a lack thereof, could well play a part if the Non-Farms prints much higher or lower than expected. In this scenario, some outsized volatility and moves across currencies, equities and bonds could occur.

Lastly, on Thursday, April 1st, OPEC+ holds its monthly meeting to assess its production cuts targets. Although spot volatility in oil markets has been a rollercoaster over the last week, it will be the futures delivery curves that will concern OPEC+ the most. The capitulation of oil last week, Suez Canal bounces aside, has wiped out the backwardation in the futures delivery curves. Without boring readers, markets in backwardation are an indicator of tight supplies.

With Asian importers on refinery maintenance cycles and content to use oil in storage, no solace is likely for oil prices from that direction this week. In this scenario, OPEC+ has almost zero chance of loosening the production cut targets. Of course, OPEC+ has surprised us before, but that is tilted towards supporting prices, and not forcing them lower. Reports are coming in that Ever Given had been refloated in the Suez Canal with oil immediately falling in price. The chances of an OPEC+ move recede to microscopic now.

Asia’s data calendar is quiet today. Vietnam’s Industrial Production and Retail Sales have outperformed, with Malaysia’s Balance of Trade and Singapore Export Prices to come. However, that data will be drowned in the noise of the Ever Given being refloated in the Suez Canal.

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, 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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