Markets circle in the holding pattern

It wasn’t a night to write home about overnight as investors adjusted positioning as they circled in the holding pattern ahead of tonight’s FOMC decisions. Wall Street equities gave back some of their previous day’s gains, while currencies and precious metals marched on the spot. Oil continued to climb after a much lower US API Crude Inventory number and a federal judge suspending President Biden’s pause on new oil and gas leases.


Last night’s US Retail Sales, PPI and Industrial Production data was another nil-all draw and won’t be enough to move the needle for the FOMC today. Retail Sales disappointed, as Americans finally balked at paying more for a used car than they had to a year ago. I thought that sort of thing only happened in Singapore, but the year 2020 just keeps on giving. April Retail Sales were adjusted 1.50% higher, though, and overall retail sales fell off a very high base. PPI hit record highs for May, but the Fed can still spin that as “transitory,” and Industrial Production was as expected.

FOMC meeting expected to be dovish affair

The street is heavily positioned with the Fed in the transitory indication corner. The FOMC is unlikely to rock the boat tonight, and if they did, it would be a massive surprise. Don’t hold out your hopes for any hint of we’re beginning to think about talking about thinking about tapering either. That might have to wait until December.


If readers are wondering why the US dollar remains so strong in that case, last night’s 20-year bond auction and the Net Long-Term Tics flows for April may hold the answer. Auction demand was firm, and the Tics data showed roughly USD100 billion of inflows in April. The Tics data show the net balance of foreign investor sales and purchases of US securities to and from US residents. One hundred billion is a lot of US dollars being bought and follows a USD262.40 billion inflow in March. So, there’s your dollar strength right there.


The day is not without interest, though, FOMC aside. US President Biden meets Russian President Putin in Geneva today. It is unlikely anything market-moving will emerge, but any geopolitical process will a marginal positive. Perhaps tell Mr Putin you’re a coffee drinker if he offers you a cup of tea, Mr President.


Japan’s Export and Import data was released this morning, both showing stellar increases thanks to YoY distortions. Exports surged over a wide range of sectors, but imports remained constrained, and Machinery Order data also disappointed. With a modest slowdown from pandemic restrictions locally, the BoJ is almost certain to extend pandemic support programmes at Friday’s meeting even if nothing else changes, which it won’t.


Asia’s highlight is this afternoon’s China data dump. China releases Unemployment, Retail Sales, Industrial Production and Fixed Asset Investment for May at 1500 SGT. Unemployment should hold steady at 5.0%, while Retail Sales are expected to fall to around 13%, coming off a high base in April. Industrial Production should hold steady at 9.0%, while a fall in Fixed Asset Investment below 15% could cause some temporary shivers. Overall, the data won’t set the world on fire after April’s stellar month, and unless it misses lower by a lot, it shouldn’t rock the boat.


China has announced new measures to clamp down on the shadow banking sector yesterday, requiring savings products to be held in AA+ assets. Given that much of those funds get funnelled into property developers, that sector took a bath yesterday. That, rather than nuclear power plant nerves, may have been the main reason for China’s equity fall yesterday. Ironically, China is also chasing crypto miners out of the country, and they are apparently heading to Texas. 2021 is giving me some giggles, and one just can’t assume we are seeing peak stupidity in any “asset” class this year. Let’s hope it doesn’t snow again in Texas.

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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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