Sideways in Singapore

Sometimes there is just not a lot to say about the markets, especially when they settle into a range-trading mode. This appears to be one of those days, and if we strip the noise out, we could extrapolate that over the past few sessions. The temptation in such circumstances is for the market too, increasingly desperately, find stories to justify the nuanced moves of a ranging market.

A deadlock on the US fiscal stimulus talks has been offset by hopes that common sense will prevail, and some sort of deal will be done, even though it will come too late for the 3rd November US elections. The US elections themselves, are not providing much in the way of headline risk. The street both comfortable and having priced in a Biden win at this stage. Only a swing of the polling needle back towards the Republicans will increase uncertainty. The US Presidential social media account is quiet by his standards, and it is this concern that has killed volatility in Asia this week. With both of the above, that situation will almost certainly change, but perhaps not this week.

China's President Xi Jinping's keynote speech in Shenzhen yesterday disappointed as well to some extent. It was heavy on rhetoric, but light on new initiatives and at the end, not market-moving for Asia at all. Mainland stock markets retreated slightly yesterday afterwards.

Financial markets are, for now, ignoring the second wave of Covid-19 now sweeping Europe and the United Kingdom. Along with its negative implications for the global consumption picture and the European recovery upon which so much has been positioned. Partial lockdowns are appearing all over the continent, but it seems markets will only react if national ones are reinstated. National lockdowns in developed markets have always been one of my key risk factors for the global recovery. Those risks are growing in Europe.

Financial markets appear far more focused on the UK and Europe Brexit trade negotiations, with the UK's self-imposed deadline for an agreement occurring today. However, it appears that the UK Prime Minister has had his bluff called and will continue talking to the European's after all. As with the US fiscal stimulus discussions, financial markets continue assuming that common sense will prevail, and a deal will be done. That reflected in Sterling overnight, one of the few instruments that actually moved. GBP/USD rose 0.60% to 1.3115 with EUR/GBP falling 0.70% to 0.9025 on trade agreement optimism. Like the US fiscal stimulus discussion, I dread to see the correction of either or both fail.

In Asia, Australian employment disappointed this morning, with full-time jobs and the participation rate both falling slightly. The AUD/USD has fallen 30 points to 0.7135 after that, and it may be that Australia has harvested the best of its post-Covid-19 peace dividend on the employment front. Much will now rest on the stimulus measures that the Federal Government throw at the economy.

A similar argument could be made for the US with the release of Initial and Continuing Jobless Claims this even. With Federal stimulus cheques long gone, the rate of improvement on both metrics has stalled over the past weeks. Initial claims remain stubbornly above 800,000, and continuing claims remain stuck around 10.75 million. Disappointing data tonight could move the needle into the red for the US, with Senate Republicans obsessed with Supreme Court appointments to the detriment of fiscal stimulus. 

Patience is a virtue in markets such as these and ignoring the incessant intra-day noise takes discipline. But patient we must be ahead of US data this evening. For all else, there is Presidential tweet risk.

Wall Street pulls Asia lower.

A lack of movement on the US fiscal stimulus package saw investors patience continue to wane overnight, spurring them to lock in recent profits, notably in large tech stocks. That saw Wall Street's major indices ease lower as investors in the US joined those in Asia on the side-lines. The S&P 500 fell 0.66%, the Nasdaq fell 0.80%, and the Dow Jones fell 0.58%. 

The lethargy on Wall Street has spilt over into Asian markets, which are mostly modestly lower. The Nikkei 225 has fallen 0.65%, with the Kospi 0.75% lower. In China, disappointment over President Xi's speech yesterday has seen both the CSI 300 and Shanghai Composite flat for the session. In contrast, the Hang Seng has fallen 1.0% over Ant Financial IPO nerves and Evergrande concerns. 

Singapore has fallen 0.50% along with Kuala Lumpur, but Australia's ASX 200 and All Ordinaries have risen 0.50%. Federal stimulus, more accessible credit and high commodity prices continue to support Australian equities. 

With a lack of headlines or data to spur excitement, investors are likely to continue to remain on the side-lines and are more likely to book profits and reduce risk than pile into new long positioning.

Currency markets range trade overnight.

With the exceptions of the British Pound, which continues to defy gravity on Brexit hopes, currency markets contented themselves with directionless range trading. The US dollar index eased 0.14% to 93.40 in a non-descript session.

The story is much the same with regional Asian currencies, which are mostly unchanged this morning after the PBOC USD/CNY fix passed without incident. Protests and arrests in Bangkok have seen the THB fall by 0.14% versus the US Dollar to 31.171, but a Baht sell-off does not appear imminent. 

Indonesia's Balance of Trade at 1200 SGT should be Rupiah support, with the surplus expected to rise to $2.35 billion. Gains by the IDR will be limited though, as the Balance of Trade headline masks falling imports caused by very weak domestic demand.

Currency traders will need more patience yet, as a lack of concrete drivers for direction leave markets becalmed in range-trading mode. 

Oil prices surprise to the upside.

Oil was the night's surprise package, with Brent crude and WTI rallying strongly despite downgrades yesterday for 2021 oil consumption. Brent crude rose 2,30% to $43.40 a barrel, and WTI also rose 2.30$ to $41.10 a barrel.

The likely culprit behind the rally was probably the US API Crude Inventory data, with crude stocks shrinking by 5.422 million barrels, well above the 3.4-million-barrel drop expected. Much of the fall is due to the effects of Hurricane Delta shuttering US production in the Gulf of Mexico, and as such, will be a transitory effect. Therefore, I am not getting too excited that a turn of direction is upon markets, although both contracts are approaching important technical resistance regions.

Although unchanged in Asia, Brent crude looks set to test nearby resistance at $43.50 and $43.75 a barrel with support at its 100-day moving average (DMA) at $42.60 a barrel. WTI meanwhile, has resistance nearby at $41.50 and $41.85 a barrel, with support at its 100-DMA at $40.10 a barrel.

For the rally to continue, both contracts need a daily close above the above resistance zones. But I would caution about being dragged into a sucker's rally at these price levels. Oil has been driven higher by hurricane-induced falling US inventories, but the fundamental supply/demand equation globally has not changed. US production is rapidly coming back online, and the fall in inventories may be temporary. Risks of escalating European Covid-19 restrictions will negatively impact that equation and should not be dismissed lightly.

Gold prices are drifting.

Gold has had a directionless 24 hours, rising modestly by 0.55% overnight to $1902.00 an ounce, and then falling by 0.25% to $1896.50 an ounce in Asia this morning. With golds direction being decided mostly by moves in the US Dollar and equities to a certain extent, and not by gold itself, we are likely to experience more of the same over the coming day. 

Gold has support at $1880.00 an ounce, and then its 100-DMA at $1870.00 an ounce. Resistance lies at $1913.00 an ounce, the overnight high, followed by the descending trendline, today at $1926.60 an ounce. In all likelihood, given the lack of drivers elsewhere, though support/resistance levels will contain gold's trading range until the end of the week.