Over to you Jerome

Wait-and-see ahead of FOMC meeting

Asian markets are likely to spend the day in wait-and-see mode with a slight downward bias today, as the street moves into a pre-FOMC holding pattern. Although I am not expecting any change in the statement’s language this time around, the FOMC surprised me last time, so I won’t say never say never. Markets appear to be similarly inclined and guarded against the outside chance that Mr Powell and friends may indicate they are starting to think about starting to talk about the possibility that they may start pondering tapering. September’s meeting remains my favourite for that kick-off, but hey, it’s 2021.


A few winds are blowing against a tapering statement this evening, not least the delta variant sweeping the Asia Pacific with an inevitable knock-on to its recovery. You can pencil in parts of the US as well. The bi-partisan US infrastructure negotiations also seem to have hit an impasse and dropped out of the news, never a good sign. Additionally, and equally forgotten, the US federal debt ceiling limit is looming and will we, or will we not, have another government shutdown.


Overnight, Apple and Microsoft delivered strong quarterly earnings but got marked down on chip shortages and peak cloud. Alphabet blew expectations out of the water and rallied while investors woke up and smelt the coffee with Starbucks, who signalled falling sales in China. We have Facebook to come today and Amazon this week as well, but it is clear that an enormous amount of good news is built into US big-tech prices, and nothing short of an Alphabet level result will stop the profit-takers. Still, any dips in big-tech remain there to be snaffled.


The China regulatory crackdown show continued delivering yesterday, with the Hang Seng enduring another torrid day. I expect today to be a better one as stories are emerging from mainland news journals that more fiscal stimulus is on the way from the central government in Q3. That should sate the wolves for now, but I suspect the repricing of China regulatory risk has some way to run yet. Eventually, the discount in stock prices will balance out the perceived risk for investors, such is the beauty of the market, but I can’t tell you when that will be.


US bond yields continued to sag overnight and finally dragged the US dollar down with them and showing no pre-FOMC nerves compared to other asset classes. I am beginning t think the bond rally is a giant short squeeze. However, I acknowledge that the persistence of Covid-19 and slowing vaccination rates could temper the recovery exuberance from a US perspective. Interestingly, the IMF upgraded the GDP of developed economies overnight while downgrading developing ones. That highlights the reality of the K-shaped recovery globally, with the vaccine, haves having, and the have-nots (the rest of us) not having.


Sitting in Jakarta, which like much of ASEAN, is in a world of Covid-19 pain right now, talk of booster shots in the US and Europe against a background of vaccinating apathy does make the heart sink. It means the rest of us will be waiting in the queue for longer while the Northern Hemisphere enjoys summer holidays and an assertion of their individual rights. On a personal level, it is infuriating; on a macro level, it inevitably means that the rollout of tier-one vaccines to the rest of the world will be later and longer, widening the K-shaped recovery. As one learned politician here in Indonesia said (yes, we do have some), “no one is safe until we are all safe.”


Data releases in Asia this morning have been thin on the ground. The Bank of Japan summary of opinions stated that the BOJ would not tighten monetary policy prematurely. I’m pretty sure that line has been unchanged for the last 20 years. RBA Inflation YoY for Q2 came in slightly higher at 0.80%, with the weighted and trimmed means on expectation. More attention was given to the 4-week extension of movement restrictions in Sydney, which again seems to have been well priced in. We can now assume that any thoughts of tightening by the RBA are off the table for now, and hopefully, the anti-restriction bogans stay at home as well. Come to Jakarta to see your future if you don’t; it’s not pretty.


Malaysia’s Balance of Trade is likely to see the effects of the movement control orders in the data, and the surplus could fall to around MYR 10 billion. Despite the recovery in oil prices, the ringgit remains near recent lows versus the US dollar as its Covid-19 situation and political fragility lurch from worse to worse. Even a spike in oil prices is unlikely to change that narrative for now or the other members of my Asian fragile five. Thailand’s Industrial Production will likely tell a similar story.


The European and US calendars are thin and second-tier today, with Facebook earnings and the FOMC rate decision and statement set to steal the headlines. If all goes to plan, equity markets should move higher on an unchanged FOMC, the US dollar will ease, and US bond yields will continue to grind lower. Over to you, Jerome.

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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