Asian markets are likely to start the day on a moderately positive note as two groupings of States in the Northeast, and the West Coast of the United States announced that they are making plans for the gradual reopening of their economies. Making plans does not equate, of course, to setting the date and opening the floodgates to normal life. Although infections and deaths appear to be peaking in the New York epicentre, the US is a long way from overcoming the COVID-19 pandemic on its shores.


President Trump has also muddied the waters somewhat, announcing that only he has the authority to reopen parts of the economy, potentially setting himself on a collision course with the State Governors. The follow-on stimulus package from Congress has hit a brick wall as well, mired in bi partisanship. It doesn’t help that they are in recess at the moment either, a bizarre turn of events when the country they govern is in a national emergency. Still, hope springs eternal, and early indications across asset markets in Asia suggest, that the announcements by the states on reopening plans will be supportive of markets in the region today.


Asia will be watching two important data points today. Firstly, China’s Balance of Payments data released at 1100 SGT. The surplus is expected to rebound to $19 billion for Mar as China returns to work. Exports are expected to have fallen by 14%, with imports falling 9.50%. Nervousness persists about the export number, with China facing an external global demand shock. A positive or negative surprise on the export number will see Asian markets move sharply accordingly.


The Bank of Indonesia announces its latest rate decision at 1500 SGT with the BoI expected to trim another 0.25% from its reference rate to 4.25%. The BoI could potentially surprise and cut by more. It will be acutely aware though, that doing so may undermine the recent gains seen on the beleaguered Indonesian Rupiah. With Jakarta and its surrounding cities in lock-down as the country, very belatedly, gets its act together on COVID-19, and facing stresses on its balance of payments and fiscal ledger, The BoI must walk an unenviable fine line now.


This evening, US earnings season gets underway, led by banking heavyweights JP Morgan and Wells Fargo. Although markets are facing corporate results with some trepidation and a complete lack of visibility thanks to COVID-19, I expect bank results to have held up reasonably well. COVID-19 is not a financial crisis, and the Federal Reserve is making sure it doesn’t become one, it is a demand crisis and a cash-flow crisis in the real economy. Although a rise in bad loans is inevitable, and interest margins will have been pressured by the slashing of interest rates globally to zero; trading revenue should substantially exceed expectations given the volatility seen in global markets in Q1. This quarter, and not the last, will give the world a much truer picture of the damage wrought by COVID-19.


Ahead of US earnings this evening, and assuming that China’s Balance of Payments passes without incident, Asian markets should look forward to a mildly positive day.


Equities of to a good start on US reopening hopes.


With much of the world still on holiday overnight, Wall Street has a muted session. The announcement that critical states in the US are working together to develop reopening protocols post-peak-virus, has given a sliver of welcome good news to markets in Asia though.  


Although developing procedures and enacting them on an agreed timetable are two different things, Asia has started positively. The Nikkei 225 is up 1.80%, the Kospi is up 1.45%, and the Australian All Ordinaries has climbed 0.90%. The Hang Seng has risen by 0.70% with the Straits Times lower by 0.15%, weighed down by its 2nd wave spike in COVID-19 cases and the country-wide lock-down.


Assuming that China’s Balance of Trade data does not surprise, Asia should continue mostly trading from the positive side until the arrival of Europe. A much worse than expected export component from the China data will likely wipe out the day’s gains so far for the region.


US reopening hopes mildly positive for G7 and EM currencies.


The US Dollar has given back some of its modest overnight rallies this morning, as US reopening hopes encourages flows out of the safe-haven Dollar and into higher risk regional currencies. The dollar index has eased by 0.12% to 99.23 this morning as EUR/USD edged 0.21% higher to 1/0940, and GBP/USD climbs 0.25% to 1.2550. 


After being under the cosh overnight, commodity currencies are enjoying a slight revival on global recovery hopes. The AUD.USD has risen 0.50% to 0.6439, and the NZD/USD has risen 0.40% to 0.6100. Both face challenges, though, maintaining rallies above 0.6500 and 0.6200, respectively. That said, having been the ugly ducklings of the COVID-19 pandemic sell-off, continued peak-virus indications from around the globe leave both well placed for strong gains over the next month.


OPEC’s underwhelming production cut agreement saw the Petro-currency grouping all fall against the US Dollar overnight. NOK, CAD, MXN, and RUB all falling by between 1.0 and 1.50%. That trend has continued in Asia with USD/MYR rising 0.50% to 4.3260.


A worse than expected China export number at 1100 SGT will be today’s key driver for the session, likely stopping the EM rally in its tracks and seeing haven flows back into US Dollars.


Oil rises in Asia on US reopening hopes.


OPEC can probably be grateful that much of the world was on holiday yesterday, muting the potential response to its tortuously derived 9.70-million-barrel production agreement. With volatility muted, Brent crude futures fell 1.80% to $31.80 a barrel, while WTI finished unchanged at $22.40 a barrel.


Hopes that US states would at least partially reopen soon has rejuvenated both contracts this morning though. Brent crude has risen 1.40% to $32.20 a barrel, and WTI has climbed 1.50% to $22.75 a barrel. The gains though are modest, and as I wrote yesterday, the OPEC+ agreement fails completely, to recoup the majority of the COVID-19 demand shock. 


Short of the US setting a timetable for reopening their economy in full, it is hard to construct a case where oil will sustain substantial gains from here. If anything, the opposite is true. A reopening of the US is fraught with danger as well, even as Europe remains in lock-down. Poorly received China data this morning, will see oil’s modest recovery end, with both contracts likely to full abruptly into the red and stay there for the remainder of the session.


Wrong on gold…. again.


I am nothing, if not consistent on gold, in that my ability to get the next 24-hour move wrong is almost uncanny. True to the thesis, I continued in that rich vein of form overnight. Having said gold had formidable technical resistance at $1700.00 an ounce, gold duly proved me wrong, rallying strongly by 1.80%, or 30 dollars, to $1713.50 an ounce.


Haven driven buying appears to have started the rally, although given equities and oil both held their own in New York, I am struggling with that premise. I strongly suspect that stop-losses above $1700.00 had a significant part to play in the rally with liquidity reduced due to holidays overnight. For now, though, gold appears to have disengaged itself partially from equities, with the avalanche of monetary policy easing globally, finally lifting gold from its recent consolidative range. 


Gold has risen again in Asia, climbing 0.60% to $1725.00 an ounce. With the OPEC+ agreement out of the way, markets are perhaps seeing the return of some sovereign interest to increase gold holdings. Fundamentals undoubtedly favour gold to move higher.


From a technical perspective, gold has strong monthly resistance at $1800.00 an ounce, which should prove formidable. But then, I said something similar yesterday, and look what happened.