Normal service is resumed

Financial Markets Recover

As quickly as it appeared, the doom and gloom of yesterday was consigned to the financial market’s dustbin, with normal service resuming on Wall Street overnight. US equities recorded a strong session led by the usual suspects, big tech. The US dollar continued its gentle move lower while energy markets crept higher. Notably, gold broke through USD 1800.00 an ounce, jumping the $20 an ounce anticipated yesterday, before settling around USD 1810.00 an ounce.

There was no notable news overnight to spur the return of confidence. Covid-19 cases continue to explode in the US sunbelt and around the world. Yesterday was what it was, a one-day correction of an extended multi-day bull run, with monetary policy globally continuing to confer immunity from the pandemic faster than any pharmaceutical company could ever hope to achieve.

China’s inflation rate continued to creep higher, rising slightly above expectations at 2.70% YoY. Food prices were the main culprit, edging higher. The restrictions on overseas imports will likely keep that component elevated for some time. Overall though, the inflation data contains no real concerns, with many countries around the world probably wishing they had that inflation rate.

Australia this morning is busily poking the wasps’ nest with China. Warning Australian citizens that they should reconsider the merits of remaining in Hong Kong over worries they will be singled out for security law love. Looking at the income tax rates and cost of living in Hong Kong versus Australia, the Australian government has a tough sell on its hands. Australia has followed Canada in announcing the suspension of its extradition treaty with Hong Kong.

The Australian press is also reporting that Prime Minister Scott Morrison will shortly announce measures to assist Hong Kong residents wishing to leave. I eagerly await the PM’s strategy on getting that one passed his voters. An AUD 100,000 residency application perhaps?

Either way, China is sure to be none to happy, with some sort of retaliatory measures a 100% certainty. Australians in Hong Kong perhaps finding the residency permits withdrawn on “security grounds” and a few more bans on agricultural products possibly? Beating up Australia and the United Kingdom over Hong Kong is much easier than beating up America. Depending on what the PM says, Australian equities and the Australian dollar could be negative risk point over the coming sessions.

The rest of the day’s data points are strictly 2nd-tier until this evening’s US Initial and Continuing Claims releases. Initial Claims are expected to remain stubbornly at 1.5 million. Continuing Claims will paint the same picture, remaining at 19.0 million. With US states extending or reinitiating movement restrictions and closures, there is potential for a negative surprise from this data. But, having corrected lower already this week, asset markets are likely to shrug it off unless there are blowout headline numbers.

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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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