More pirouettes than the Bolshoi Ballet

If financial markets were a ballet, it would surely be regarded as one of history’s most complex. No Sleeping Beauty’s or Swan Lakes here; instead, the markets engage in a seemingly impossible series of pirouettes, leaps (of faith), and changes of direction that would test the toes of any prima ballerina.

Overnight, a series of Federal Reserve Officials made their way to the orchestral pit and played the transitory inflation arrangement. Last week, what was ignored wasn’t in last night’s performance, as the dip-buying buy-everything ensemble freed themselves of constraints and got back to business as usual. Energy prices took a standing ovation and the bunches of flowers.

Stocks rallied, notably technology as US long-dated yields headed south as the US dollar was sold, notably against Asian currencies, and our dear friends in the crypto-space powered higher. The bitcoin boost was helped along by Elon Musk, who tweeted something about mining, as good a reason to indulge in a crypto-feeding frenzy as any, I guess. I may have to revise my “peak Elon” outlook.

Gold has held steady overnight because who wants gold when the world is saved? It has started retreating in Asia, and I suspect that some weekend trading crypto-hedging is being unwound. The Chinese yuan rallied to near two-year highs versus the dollar as its currency basket moved higher against the greenback. Some corners of the market will suggest that a stronger yuan is an easy way for China to take the heat out of commodity prices, but that would be at the cost of more expensive exports.

If nothing else, the buy everything rally, which is spilling into Asian markets this morning, naturally, highlights just how much money is waiting on the sidelines in a zero per cent world to buy any dip. Even the Fed Governor’s long treatise on a digital US dollar overnight couldn’t keep bitcoin or the US dollar un-Stable coins down. It should.

Admittedly, although prices have been rising worldwide, there have been enough speed bumps in the data along the way, notably in the US recently, to leave financial markets with nagging doubts. The Federal Reserve is determined to keep it that way, likely with a taper-tantrum in mind. A Mike Tyson punch-in-the-face inflationary knockout blow has yet to be delivered, leading to a seemingly endless cycle of flip-flop behaviour of late. Hopefully, the Non-Farm Payrolls data will clarify the situation at the end of next week, one way or the other.

In the meantime, don’t take off your ballet shoes and be prepared to keep pirouetting.

In Asia, the data, although second-tier, has been upbeat today. South Korean Consumer Confidence rose again but won’t move the Bank of Korea this week. Singapore final GDP Q1 expanded by 3.1% QoQ, and Thailand’s Balance of Trade for April slightly outperformed, rising by USD0.18 billion. Lunar New Year effects impacted the Thailand numbers, but today’s overall data picture is of a modest recovery continuing.

None of the data will have any impact as each of the countries mentioned, plus most of Asia ex-China is struggling to deal with waves of Covid-19 infections. Most concerning is Malaysia, with India semi-priced in by markets that will only be focusing on the fall in daily cases to a number slightly less gigantic than previously. Malaysia’s weak government has prevented it from entering a decisive lockdown. The danger is that the having-your-cake-and-eating-it approach, which has failed unceremoniously everywhere else globally, leads to a double-dip recession in Malaysia.

Finally, readers should keep an eye on the Turkish Lire today. Turkey has announced the sacking of one of four of its deputy central bank governors. Working for the central bank is a hazardous occupation under Erdogan, and previous sackings have been met with bouts of Turkish Lire (TRY) weakness. USD/TRY is unchanged at 8.3900 for now, but not far away from recent highs at 8.5700. That may change as Europe arrives, with Mr Erdogan intent on TRY-ing investor patience, rather than TRY-ing harder to manage the economy properly.

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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