The waiting game

Markets eye earnings, FOMC meeting

As expected, markets were quiet overnight ahead of a deluge of tier-1 earnings, data, and the US FOMC policy decision over the rest of the week. Equity, currency, oil, and precious metals markets were content to range trade, with only bitcoin showing some life, falling by nearly 6.0%. Bloomberg is reporting that it looks like Coinbase is in trouble with the US SEC over what is a security and what isn’t. Draining the crypto-swamp is going to be a drawn-out process. Oil is rising higher this morning in Asia as energy markets, once again, get caught out by a Russian whipsaw choke hold.

There have been a couple of developments overnight that appear to be weighing on Asia today. Gazprom cut natural gas flows through Nord Stream 1 to around 20% of capacity, citing the usual “technical issues.” That follows the cruise missile attack on Odessa on the weekend, shortly after signing a Turkish-brokered deal with Ukraine to allow the resumption of grain exports. Markets continue to place hope on what Russia says, rather than what it does, when they should be approaching it from the opposite direction. Dutch natural gas prices moved nearly 10.0% higher, but European equities were remarkably resilient; despite a weak German IFO number, I can’t see that lasting.

Late in the US session, retail stalwart Walmart produced a very unimpressive set of results alongside a grim outlook for the rest of the year. Walmart blamed food and energy inflation, reducing consumers’ discretionary spending power, and I can’t argue with that. Today sees Alphabet and Microsoft also announcing earnings, and although there is a lot of nerves around the digital advertising space, I suspect it will be Meta’s results tomorrow that really set the tone. As Meta found out earlier in the year, stock markets are a harsh mistress now if the pandemic-derived growth fantasies can’t be maintained. The same fate surely awaits all three, and Apple this week is that the fairy-tale hits a brick wall. Either way, we are unlikely to see a Wall Street session this week as quiet as the one overnight.

Meanwhile, in China, the announcement of a USD 44 billion fund by the government to support beleaguered property developers had zero impact on Chinese equity markets yesterday. That could be because China will need to stump up a lot more than USD 44 billion worth of yuan to stop the rot. Evergrande, the big distressed-debt kahuna of the space, is approaching an end of July deadline to progress on restructuring its offshore debts. The CEO has been replaced this week, a victim of creative accounting by the group uncovered earlier this year. It looks like the end of July deadline will be a bit of a sea anchor for China equities this week.

Yesterday, Singapore’s inflation data surprised to the upside on both the core and headline readings. We can safely assume that the MAS will be sharpening their pencils for another tightening of monetary policy at their scheduled October meeting, although October seems like a long way away right now.

One bright spot today was South Korean Adv Q2 GDP, which rose by 0.70%, with forecasts expecting a retreat to 0.40%. Strong consumer consumption as covid restrictions eased, were behind the gain. Unfortunately, April-June 2022 is also an age away now, and the picture may have darkened since. I am expecting minimal impact from the data on either the won or the Kospi.

The Thailand Balance of Trade and Singapore Industrial Production will be of only marginal interest today. Europe’s calendar is empty except for the Hungarian Central Bank policy decision; markets expect a 0.75% hike to 10.0%. The US calendar is rather more substantial, featuring Case-Shiller House Price Index, New Home Sales, CB Consumer Confidence and Richmond Fed Manufacturing and Services Indexes. In the present environment, with the recession word on everyone’s lips, you’d have to say all that data has downside risks.

The US government is apparently trying to change the definition of a recession from two consecutive quarters of negative growth. Like governments everywhere, they are in a damage-control mood as inflation soars, making their populaces angry. In many cases, most of that blame should be laid at the feet of Russia and their respective central banks. Bulging with PhDs in economics, they all missed the transitory versus entrenched inflation trade, and now here we are.

Governments get the blame, of course, especially in democracies. The White House’s responses of late, as mid-terms loom, are starting to look desperate and are lacking dignity. Still, US commodity prices have fallen this month, gasoline consumption and pump prices have fallen sharply, and the US-centric WTI complex is looking much more wobbly than Brent crude. They say the best cure for high prices is high prices; perhaps the Democrats will get some good news before the mid-terms, although if job losses have started in earnest, it may still be for nought.

Anyway, I digress. Today’s session in Asia is likely to be erring to the soft side as recession fears mount in the US after Walmart’s results. Europe will be dominated by gas, the US by big tech earnings with a smattering of data. I had said previously that the bear market rally will have its moment of truth at the FOMC, but judgement day could arrive a little earlier. I am still not game to pick how this week finishes and will happily watch the circus from the upper-tier seats.

One last thing, and I know I must be boring readers now, but it’s important, and it’s China. Reuters has reported overnight that authorities had ordered 100 large firms in Shenzhen into closed loop systems to counter Covid and keep the factories going. Once again, Covid-zero means Covid-zero, not Covid-zero once and done. If push comes to shove, I have no doubt that China will engage in large-scale lockdowns once again if it can’t get on top of its Covid outbreaks. Bottom fish China if you wish, and if you have a long-term view, why not? But be prepared for an exciting ride along the way, as the light at the end of the 2022 tunnel could be the train coming the other way: possibly carrying officials to an Evergrande creditors meeting.

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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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