It was another choppy night of range trading across most asset classes overnight, and as I have said previously, this week looks like it belongs to the day traders, not directional investors. Despite the noise intra-day, equities, precious metals and currencies finished the day broadly where they started.
Some weaker than expected US housing starts and services PMIs, along with dovish Fed-speak from Bowman, saw a modest risk-on rally initially. However, later in the day, hawkish rhetoric from Messrs Bostic and Kaplan abruptly reversed that course, with gold sharply reversing gains and the US dollar rallying in the same manner, while US yields edged slightly higher. If nothing else, it highlights how nervous markets remain about the possibility of sooner than expected tightening by the Federal Reserve, despite Mr Powell’s attempts to dampen those flames earlier this week. It also likely explains why Asian currencies have shown no sign of rallying versus the greenback this week either.
With a tier-2 calendar for the rest of the week, it would take a big miss lower by durable goods and PCE tonight to shift the dove needle materially – we will remain at the mercy of Fed-speak and a schizophrenic intra-day market. With a new month starting next week, the data calendar fattens up notably. We have PMIs, notably official and private China readings, and the US Non-Farm Payrolls on Friday, to name but a few. By the end of next week, we may better understand whether doves are flying, or hawks are swooping. I will be on Sumba Island, though, Indonesia’s Covid-19 situation allowing.
Asian markets remain equally calm today after New York’s nil-all draw. A US bi-partisan group appears to have reached a preliminary agreement on the US infrastructure package and will be presented to the US president today. Its scope and how it will be paid for will interest financial markets the most, although it has caused no ripples in Asia.
Bitcoin’s recovery looks to have run out of momentum, for now, failing at USD35,000.00 overnight and falling to USD32,600.00 this morning. I feel I gained an insight into the crypto-currencies refusal to roll over and die like any tulip, Dutch or otherwise, eventually does.
Yesterday, my millennial daughter asked me over WhatsApp (it’s never voice, readers) whether she should invest in bitcoin. The real point is that if TikTok can tempt my expensively educated kids into buying bitcoin, then by extrapolation, there are many FOMO dip-buyers out there. It makes me even more bearish of cryptos in general, and my new line in the sand is USD28,000.00, where I suspect those sub-USD30,000.00 stops were moved to ahead of the dip this week.
Today’s calendar in Asia is bereft of excitement, with the Philippines BSP almost sure to leave its policy rate unchanged at 2.0%. With its focus entirely on supporting the economic recovery and inflation edging back near the top of its 2.0% to 4.0% target range, it would be a massive surprise if they hiked and an even bigger one if they cut.