Is the Buy Everything Trade Stalling?

Asian markets stall at start of week

Friday had a buy the rumour, sell the fact look about it as US Non-Farm Payrolls data outperformed, but markets still retreated anyway. Jobs rose by 1.76 million, much better than the 1.5 million expected. However, the v-shaped recovery gnomes of Wall Street decided that wasn’t close enough to last month’s 4.8 million and headed to the exit door. Financial markets can be a tough audience to please sometimes.

Adding to the woes was the breakdown in talks between the Republicans and Democrats over the follow-up stimulus package. Covid-19 continues to rampage across the US, stoking fears of a double-dip in America’s recovery. Coming hard after the banning of WeChat and TikTok by the President, investors seemed more focused on reducing risk into the weekend, concerned by the potential scale of Chinese retaliation.

China has said nothing of note over the weekend regarding the matter, its attention seemingly focused on an official US government visit to Taiwan instead. Hong Kong will likely reflect the concerns today instead, being a listing venue for Tencent. Hong Kong’s police have also arrested several citizens under the new security law this morning, including a prominent media magnate. Hong Kong stocks are likely to be unloved in the first part of the week.

Markets, though, appear to be stalling across the spectrum of instruments, notably amongst the major currencies. But precious metals, oil and even stock markets are all displaying topping formations on their charts, and a fall in momentum. I will stick my neck out here and suggest that this week could be one of correction, with the potential to develop into a deep stall.

As I have written previously, stalling an aircraft close to the ground is the start of a very bad, and very short, day. With plenty of altitude though, a stall is eminently recoverable. In the case of financial markets, they have altitude in abundance, meaning a deep stall and ensuing dive could develop with plenty of room to recover. The introduction of some two-way price action would be a welcome development after uni-directional price action on steroids since mid-March.

Before the headlines break that, “Halley calls top in stock-market rally, the end is nigh for the world,” the building blocks of a continued longer-term appreciation in asset markets remain firmly in place. That is the tidal wave of free central bank money and fiscal stimulus sloshing around in the world’s financial system looking for a home. Think post-GFC, but with much more velocity. US stock markets, for example, could probably retrace 30% from present levels and still be in a bull market. The charts are suggesting though, that the V-shaped recovery buy everything trade is about to run out of airspeed. We should know by the end of this week whether I am a genius or just another top-picker crushed below the feed of the stampeding FOMO-herd.

With the breakdown of talks in the US on Friday, President Trump passed several executive orders from the golf course on Saturday to fill in the gap. The President extended coronavirus unemployment benefits, albeit cutting the payment from $600 per week, to $400 per week. He also suspended payroll tax and suspended student loan repayments and rental housing evictions. The effect on the market was zero because of doubts over the legality of the executive orders themselves. The reduced payments are, in fact, a Federal pay-cut package, and not a stimulus package.

Far more disturbing for the author, is a New York times story circulating this morning, that President Trump has made enquiries about having his image carved into Mount Rushmore. I look forward to the memes.

Both Japan and Singapore are on holiday today, which is likely to mute activity in Asian markets. China’s inflation data has passed without incident today, with Asia’s calendar, otherwise empty. We will receive a plethora of CPI and PPI data from across the globe this week. None of it will have any effect, other than to confirm that there is no inflation anywhere, unless you live in Venezuela or Zimbabwe. The data calendar is strictly B-team this week, until Thursday’s US Initial Jobless Claims, and then Chinese Industrial Production, Retail Sales, and US Retail Sales on Friday.

Wednesday’s Reserve Bank of New Zealand cash rate decision will be of passing interest to the region, if only to see if the RBNZ increases its quantitative easing target or ups rhetoric on negative interest rates. None of the above will be currency supportive, with the New Zealand dollar rally running into serious resistance in the past month.

Markets are likely to be dominated by geopolitical headlines in the first part of the week. That has started with the Hong Kong arrests this morning and a possible lawsuit by Tencent against the US government tomorrow. China will almost certainly announce retaliatory measures this week against US companies, which may be enough to add downside momentum to my corrective prediction.

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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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