More tail chasing

Wall Street did another U-turn overnight, finishing lower as the dearth of tier-1 data and the pre-FOMC media blackout left the FOMO gnomes chasing their tails once again. Wall Street closed modestly lower, ostensibly because Apple said it would slow hiring, joining its other tech-giant brethren. That was despite Goldman Sachs and Bank of America producing decent earnings results, although investment banking revenue took a hit as IPOs and SPACs have dried up. More than likely, the stock market pullback was just noise on a slow news day. The losses overnight have been dwarfed by the gains from Friday, so the bear market rally thesis still has life; it just won’t be a linear progression.

US dollar retreat continues

Elsewhere, currency markets ignored Wall Street, with the US dollar falling again overnight. Once again, the greenback mostly retreated versus the majors, while Asian FX booked only modest gains. The greenback was long overdue a correction, and this is playing out nicely. The interest rate differential play remains real in Asia. Readers should beware of the “dollar smile”; running into the FOMC, the US dollar’s grin may get wider again. US yields also edged higher overnight, but it seems like noise, nothing special. Gold remains in an induced coma near USD 1700.00 an ounce, and risks remain skewed towards more gold bugs getting squashed.

Oil had another frisky session, Brent and WTI rallying by around 5.0% overnight. That seems to be becoming the norm for oil prices these days, and with intraday vol like that, risk managers are probably telling the trading desk to cut position sizes intraday, creating a negative feedback loop on the liquidity front. It’s hard to say what made New York want to push oil higher, but I suspect they belatedly realised that Joe Biden came away with nothing from the Saudis. The + in OPEC+ is clearly more important to OPEC at the moment. Gazprom also announced some force majeures on European gas customers overnight, apparently, something that doesn’t bode well for the reopening of Nord Stream 1 on Thursday this week. Gas-margeddon Thursday is clearly playing its part in the oil rally, and it makes the European stock market rally even more surprising overnight.

The major news flow washing over Asia today appears to be China’s announcement overnight that it may allow mortgage payment holidays for local buyers on uncompleted housing projects. Although the structure isn’t at all clear yet, it appears that local authorities and state-owned banks making will be “invited” to take up the slack. It appears to be a response to the mortgage payment protest by citizens in China, something the CCP is acutely sensitive to, and may mark the first steps by government entities to take on the credit risk from developers to get projects completed.

China markets seem to be interpreting the announcement as a quasi-stimulus to backstop the property market. I won’t disagree with that, as trying to quietly work out the developer debt problem under the radar over time clearly hasn’t worked. Shanghai industrial commodity futures are on fire in early trading; nickel, aluminium, coking coal (to make steel), and rebar prices, amongst others, are all between three and six per cent higher today, suggesting markets believe government intervention is about to unlock the construction sector. That’s a bit of a reach, given have no concrete details of the plan yet, but one must respect the momentum.

It is a desert on the data front in Asia today, but the China developments should see some positive spill over into Asian markets, which could well shrug off the noise from Wall Street overnight. This afternoon, Eurozone inflation data for June looks set to print at 8.60%. Given that it is final and not flash or preliminary, I expect that to be priced in. UK employment and earnings this afternoon could throw a recession curve ball if both surprise to the upside. That will lead to some recalculations on BOE tightening and could support the sterling.

US Housing Starts and Building Permits for June look to be the day’s data highlights. I wouldn’t rule out an upside surprise today with retail sales and consumer confidence data holding up nicely last week. Since stock markets rallied after that higher data last week, I wouldn’t bet against the same thing happening again tonight.

Finally, the only release of note in Asia today, the RBA Minutes, has dropped. The RBA members noted that rates were well below the neutral rate, given the conditions in the economy. You could probably leave a blank space in that sentence and put – insert central bank name here – at the moment. The Australian dollar is sharply unmoved this morning, suggesting the minutes revealed nothing that wasn’t already priced in.

A day of headline-watching beckons.

gold