Just in case

Technology earnings send Nasdaq to record high

The buy everything gnomes were out in force overnight, with US stocks markets closing at or near record highs despite Durable Goods missing. The main culprit was transport, with the automotive sector’s chip-shortage woes appearing in the numbers. Financial markets, though, quickly put it behind them as transitory.

With US yields remaining benign, the US 10-year comfortably nestled in its 1.55% happy place; there was no reason not to keep buying equities. The heavyweight earnings calendar this week expected to reaffirm that the US recovery, and parts elsewhere, is solidly on track. Notably, the US dollar crept higher overnight, and I suspect that the reason is tomorrow’s FOMC rate decision. Nobody really believes that the Fed will change its forward guidance, but “just in case”, investors appear to be loading up on the US dollar as a hedge. The greenback is likely to resume its gentle retreat if the FOMC passes without incident.

US GDP is looming on the horizon this week as well, with plenty of pundits suggesting that an annualised 7.0% growth rate isn’t out of the question. I’ll not disagree with that premise, but I am struggling to see how US 10-years can stay anchored around 1.55% in that scenario. For now, the market is telling me I am wrong, and the market is always correct until it changes its mind and decides it isn’t. King Canute, I am not, although sometimes I do feel like an island.

Germany’s IFO rose overnight, shrugging off vaccine concerns. That is in line with the solidity of last week’s pan-Europe PMI data, and Europe has become the street’s favourite cyclical recovery place. With 25% of Europeans now jabbed and its vaccination programme set to accelerate in the next two months, the premise has merit. Only a sudden steepening of the US yield curve will likely knock that off track.

South Korean Adv GDP for Q1 QoQ outperformed this morning, rising by 1.60%. It gives markets more evidence that the global recovery is on track, even if it will be a K-shaped one with a capital K. Electronics, unsurprisingly, led the way, but evidence of increased activity was noted across most sectors, including domestic consumption.

China Industrial Profits for March rose 92.30% YoY. Although the baseline effects of last year’s Covid-19 lockdowns flatter the headline, the data reinforces that the factory of the world’s growth remains steadfast. With some economics saying that the pace of recovery is slowing behind the headline data, that underlying premise will receive a more vigorous examination from the official PMI data released on Friday.

The tragic Covid-19 situation in India is world news, and rightly so. However, data emerging yesterday suggests that new cases are peaking in Mumbai and New Delhi. Both the Indian rupee and Indian equities have made recoveries over the past two sessions, and one expects this news to account for much of those gains. Although the Indian situation remains dire, the nascent recovery by local financial markets is a reminder that a seemingly bottomless ocean of investor money is looking for a home in a zero per cent world. Only a rapidly steepening US yield curve will upset the buy-the-dip applecart that has served the world so well over the past year.

US earnings session hits top gear this evening, with a who’s who of corporate heavyweights announcing Q1 results. Most attention, though with be on the technology titans Microsoft and Alphabet. Apart from the headline numbers, which should be spectacular, most attention will be focused on their growth outlooks and whether those expectations are reined in as the world reopens in key economies. With such rich valuations, any revised downward guidance will likely be punished by investors. For the same reason, earnings at or near expectations will probably be punished as well but do remember what I said about buying the dip.

Turning to cryptos, one of the world’s largest bitcoin traders, Tesla Motor Inc, announced quarterly earnings yesterday. Its share price fell yesterday in a classic “buy the rumour, sell the fact” scenario, something big-tech may also face this week. It made its usual money from selling environmental credits and sold some electric cars, charged by clean electricity produced in coal-fuelled power stations. Notably, it booked over USD100 million on Bitcoin, and its CFO reiterated their faith in the crypto (he/she had 100 million reasons to, I guess) That was enough to turbo-charge bitcoin’s rally yesterday, the “mainstream asset” finishing 5.30% higher at USD53,250.00 of US fiat currency back by US taxpayer revenues.

As I had pondered yesterday, Tesla’s CFO had indeed tweeted something that had sparked the recovery. Mr Musk tweeted, “What does the future hold?” I have not had a chance to consult with my millennial daughters, but apparently, that means buying as much of every crypto as you can, as quickly as you can. The market has answered the call, of course. For my part, the bitcoin chart shows that bitcoin had fallen out of a rising wedge at USD56,000.00; despite the noise, the technical target remains USD42,000.00 or thereabouts. The wedge base is at USD58,000.00 today, so a daily close above there will tell me I am wrong, although it will be behind a long queue of crypto believers.

Finally, the Bank of Japan has announced its latest policy decision just now. In an 8-1 decision, the Board held its policy rate unchanged at -0.10%, with no change to its yield curve control programme, entirely as expected. GDP forecasts rose ever so slightly to 4.0% for 2021, although Core CPI guidance was revised downwards to 0.10% from 0.50%. BOJ President Kuroda said the 2.0% inflation target would not be achieved during his term. The quarterly report forecast only a moderate recovery. Combined with the Covid-19 states of emergency around the country, Japanese investors have given the uninspiring quarterly report and comments a thumbs down, with Japanese equities retreating.

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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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