Lessening Lockdowns, Vaccine Hopes, Trump Hong Kong Concerns

After a heavy schedule of national holidays around the world yesterday, a sense of normality returns to financial markets today. After quiet, but positive sessions for equities in Europe and Canada, Asian markets have started the morning on a strong positive note. Hong Kong worries dominated the news towards the end of last week and over the weekend, with protestors returning in force to the streets over the weekend.


As is the financial market’s want these days though, even the slimmest of positive news on the COVID-19 front trigger a bullish immune response and another wave of the peak-virus trade. That came on several fronts today. US Memorial weekend saw the US out in force enjoying their post lockdown freedoms. Japan in addition to announcing more billions in stimulus, signalled that the final lockdowns over their largest cities are ending. On the vaccine front, American biotech firm, Novavax, announced the start of human trials for its COVID-19 vaccine. Even US-China trade tensions have been pushed off the front pages, crushed beneath the tank tracks of the peak-virus trade’s momentum.


Singapore announced a less bad than expected Q1 GDP this morning. Q1 GDP QoQ fell -4.70% versus an expected fall of -7.40%. Most of the attention, though, will be on Singapore’s inflation data at 1300 SGT, and the details of Singapore’s 4th extra budget released today. Inflation may well drop into negative territory this afternoon, spurring speculation of an out of sequence easing by the MAS, and even more fiscal responses at a later date. The extra budget is likely to focus on job-reskilling and topping up the salary support package for employers in the hardest-hit sectors. That should be supportive for beleaguered Singapore equities, at least in the short-term.


Elsewhere, Malaysia, Indonesia and Brunei remain closed for the Eid holiday.


Equities march higher on vaccine and lockdown hopes.


A full reopening of Japan, and vaccine hopes from the United States, has shunted Hong Kong worries to the back of the equity market’s minds today. Asia has started the day strongly, with the Nikkei 225 leading the way, leaping 2.10% this morning. 


It is followed by the Kospi, which has climbed 1.20%, followed by the Straits Times, which is up 1.0% despite weak GDP data. Mainland China is also in the green, with the Shanghai Composite 0.60% higher and the CSI 300 0.20% higher. Australia’s All Ordinaries has jumped 1.45%, with the NZX 50 rising 1.20% on the session.


Hong Kong is the regions surprise outperformer today. Despite protests over the weekend and the liberal use of tear gas, rubber bullets, and arrests by the Hong Kong police; the Hang Seng has leapt by 1.90%. The outperformance is probably reflecting the depth of the sell-off at the end of last week.


Asian equities look set to remain at very favourable levels for the remainder of the session. What is clear is that the peak-virus trade continues to maintain its strong positive momentum. Negative headlines on trade and security etc. may cause short-term falls, but they appear to provide dips to get longer rather than structural changes in sentiment.


Global holidays flatline currency volatility.


The raft of holidays around the world has sapped volatility in currency markets in the near term. Nevertheless, a gentle, but noticeable, rotation out of the haven US Dollar continues. This morning, the dollar index has fallen again, dropping 0.15% to 99.700.


One area where the US-China tensions remain visible is the USD/CNY. For the second day in a row, the CNY fix has been set at a 12-year low, at 7.1293. To be fair to China, the CNY fix reflects the strength of other currencies in the basket, rather than the beginning of a deliberate devaluation cycle. China will be walking a fine line with a belligerent United States government at the moment though. They can probably be relieved that the US is on holiday today.


Amongst the majors, the EUR/USD has nearly completed its technical correction, falling to mid-range at 1.0900. A break of the two-month resistance at 1.1000 heralds a potentially strong rally now. 


With the peak-virus trade in full swing, AUD/USD’s gentle correction lower looks to have run its course now as well, sitting at 0.6550 today. A daily close above 0.6600, suggests a test of the 200-day moving average at 0.6655 is in play. A return to the 0.6800 regions after that is quite possible.


Overall, and with some regional centres still closed this week, the US Dollar looks poised to continue its slow retreat as global economic hopes continue to rise.


Oil is refusing to roll over.


Oil has advanced modestly higher today following a relatively shallow dip on Hong Kong ructions at the end of last week. Although multitudes of holidays around the world have thinned trading, the fact that oil has managed to hold onto almost all of its recent gains, suggests that higher levels lie ahead. 


Brent crude has climbed by 1.0% to $35.90 a barrel today with last Thursday’s high at $36.95 a barrel initial resistance. A move through there opens up further gains to $40.00 a barrel. From there Brent has a five-dollar gap in its charts from the mid-March mass capitulation sell-off. If Brent crude were to reclaim $40.00 a barrel, hopes would rise that this gap to $45.00 a barrel could well be filled in. Only a fall through $32.00 a barrel negates this technical outlook.


In a similar vein, WTI has risen 0.70% this morning to $34.10 a barrel, just shy of Thursday’s high at $34.65 a barrel. A move above there opens a test of the 100-day moving average, today at $36.85 a barrel. Only a fall through $30.00 a barrel would negate the bullish technical picture for WTI for now. 


With the peak-virus trade still clearly in the ascendancy in global markets, like equities, negative headlines appear to be more of an opportunity to buy dips, than representing a rush for the exit door. 


Gold price action continues to disappoint bullish traders.


Gold has risen a modest 0.30%, to $1734.10 an ounce today in directionless trading. The modest gain though, cannot disguise the underwhelming performance of gold over the past week.


Gold has failed to close above its $1750.00 an ounce resistance zone multiple times last week, and the resurgence of global economic hopes saw the yellow metal retreat as low as $1717.00 an ounce. Gold now sitting in the middle of its one-week range and its fate is likely to be determined by whether the global recovery trade maintains its momentum elsewhere.


The price action suggests that plenty of recent long positions are still sitting nervously, hoping for a rally above $1750.00 an ounce. A fall through $1700.00 an ounce though, is likely to see weaker long positions exit the market. That could see gold extend its sell-off all the way back to support at $1675.00 an ounce. 


Overall, gold is waiting to see how events play out in other asset classes to determine its next move. Having disappointed to the upside, the danger remains that bullish positions have more pain ahead of them in the near term. 


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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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