Covid concerns weigh on equity markets

Despite a frisky overnight session for US stock markets, Asia-Pacific markets just can’t shake off the pandemic blues. The Covid-19 delta variant is having a global impact, with cases rising in the UK and Russia and appearing in Europe. Meanwhile, Malaysia, Thailand and most worryingly, Indonesia, continue to the battle, with three state capitals in Australia now in lockdown as well. The list goes on, but unless you are bulging with m-RNA muscles in the US, disquiet is creeping into equity markets about whether forecasts of reopenings and recoveries need to be revisited.

Equities aside, other asset classes remain in wait-and-see mode ahead of PMI Thursday and then Friday’s US Non-Farm Payrolls which should give the street clarity on their Federal Reserve tapering thinking. Mind you, I have said that about the last two payroll numbers as well. Still, this time around, a high print should see a tapering reaction in markets. In contrast, another soft print will probably see the transitory inflation, rates low forever, buy-everything gnomes finish the week with the upper hand.

Pandemic blues did make their presence felt overnight to a modest degree. US yields eased in sympathy with a potentially uneven global recovery, mixed in with some expectations of the total of the Biden build back better bill. That couldn’t budge currency, commodity or precious metals markets, though, which were resolute in their sit-on-hands ahead of Friday mantra. Oil prices did correct lower as expected ahead of OPEC+ this week, but this looks more like a technical correction. It’s nice to be right every now and then.

US markets beat their own path overnight, with technology outperforming after Facebook saw off the US FTC’s antitrust lawsuit over its WhatsApp and Instagram purchases. The ensuing rally lifted it into the trillion-dollar club as markets gave it a huge “like.” That lifted the rest of the tech space. Ahead of the Q2 earnings season, which will start soon, large US banks have signalled juicy dividend increases and increased buybacks after passing the Federal Reserve stress tests.

Even bitcoin moved sideways overnight, hovering around USD 34,500.00 after recovering all of its Friday losses over the weekend, for reasons I know not. Canada has joined the UK and Germany in binance bashing, but news that Cathy Wood’s Ark wants to launch a crypto ETF will probably balance out regulatory threats for now. My now ropey triangle formation on bitcoin is bounded roughly by USD 31,500.00 and USD 38,500.00 now, with the virtual Dutch tulip anchored mid-range. It could go up or down from here, depending on whether there are more buyers or sellers, but I shall only start paying attention again on a daily close below or above those two levels.

The data calendar is once again in Asia. Malaysia released a new stimulus package overnight which has had no market reaction. Malaysia’s Covid-19 trajectory and shaky politics trump any government cash. Japan Retail Sales were soft in May (MoM), and Unemployment ticked higher. Vietnam’s Balance of Trade unexpectedly fell to USD -1.0 billion, while GDP and Industrial Production grew, but not by as much as forecast. Both countries have been dealing with Covid-19 spikes, and the main takeaway seems to be that the virus is nibbling away at the edges of the regional recovery but has not yet chewed through the main power wire.

China set another neutral USD/CNY fix today but added another CNY 20 billion in liquidity via the repo market. We have tier-1 PMI releases from China starting tomorrow, but I can’t see anything being allowed to upset the applecart in China during the Communist Party’s 100th birthday week.

Germany releases inflation data this afternoon, and the UK and US release house price data, with the ECB’s Lagarde and Fed’s Barkin speaking. None of it is likely to move the needle until the data calendar starts accelerating from tomorrow. Financial markets will be at the mercy of swings in intra-day sentiment, making it a day-trader’s playground.