To and fro

New York’s overnight session has not given Asia much to sink its teeth into today. The US dollar eased ever so slightly, bond yields rose ever so slightly, and equities fell ever so slightly, albeit they recovered from an intra-day sell-off. Only the commodity and precious metal space showed signs of life, with gold and oil powering higher once again and clearly the favoured destination for the fast money herd overnight.

Will FOMC minutes point to taper?

It was a slow news night on the macro-economic front, with a thin data calendar. Part of the reason for the cautious finish by Wall Street could have been remarks from Fed FOMC member Robert Kaplan, who raised the possibility of tapering and rate hikes in 2022. That is consistent with his viewpoint in recent times, and as such, it wasn’t a surprise, but it was a slow news day. Thursday morning’s FOMC minutes release could spark some taper-tantrum volatility if it reveals other members are becoming more aligned with Mr Kaplan.

Given how skittish markets are at the moment, with fast-money flows dominating day-to-day price action, tonight’s US Housing Starts and Building Permits for April will present the next market inflexion point. In these sorts of markets, the outcome will be binary. Higher numbers equal sell equities and bonds, buy dollars, and lower numbers equal buy equities and bond, sell dollars. Commodities will probably rally regardless, if the overnight price action is anything to go by; such is the way of the world.

Covid-19 in Asia continues to weigh on sentiment locally but seems to be noticeably less so looking at Asian equity markets this morning. The street remains myopically focused on the US and Europe recovery, with record German daily vaccinations underpinning the euro and equities in the region. China remains the primary variable as, like the rest of Asia, vaccinations have been slow. Only a surge in locally transmitted virus cases across multiple locations can probably upset the narrative.

One variable that is keeping the late bull market buy everything army honest is inflation. Frankly, I am still wavering on whether inflation is transition or sticky. Once the rest of the world catches up the US/UK/Europe vaccination axis and the ensuing kneejerk consumption hump passes, much of the supply chain stress will pass quickly. We have seen peak globalisation, and all that Covid-19 stimulus will need to be paid for. Additionally, the world was actually slowing down before Covid-19, but we just don’t know enough to assess whether a post-pandemic return to the mean will occur. Over the next six months, though, it is hard to say anything else, but the only way is up.

One place inflation probably won’t be coming from is Japan. Virus restrictions weighed on private consumption, and Q1 GDP fell by -1.40%. That situation will deepen with the virus states of emergency in Q2. Nevertheless, the fall was as expected. After a few sessions under the cosh, Japanese investors have decided no news is good news and are piling into stocks with vigour today, a pattern being repeated across Asia.

The global calendar has a tier-3 comatose look about it today until the US Housing Starts, leaving markets at the tender mercy of the intra-day tail chasers and news headline risk. EU 2nd estimate (how long does this take?!) GDP for Q1 will be of passing interest. Still, frankly, it is already old news as financial markets are only interested in the pace of the vaccination-led recovery.

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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