Call it traction, tail hunting or FOMO of galactic proportions, financial markets continued to defy reality and confuse last night. They impressively mocked all of the author’s outlook yesterday, with the US dollar, stocks, energy and precious metals all rising in trade one day. Apart from being impressively wrong with everything, I am now even less aware of the market direction than before. However, past experience suggests that when markets behave in this way, the dangers of whip price action for short-term traders increase exponentially.
Depending on who you read or talked to, the overnight session was dominated by resurrected hopes of a financial recovery after the shutdown or increased risk aversion. If we could now chart headless chicken volatility, I’m sure it would be heading to record highs, implying that a strong outbreak was imminent, but with no real insight into the direction. However, one thing we can all accept is that the trade in high viruses remains robust, but seems content to wait for short-term market dips to infect markets again, as opposed to chasing them directly higher.
The biggest concern I have about the lifespan of high-virus FOMO trading is perhaps in the charts of the S&P 500. It has tracked a double peak on the daily chart of 2950.00, its 61.8% Fibonacci retracement from the low of sold -in March. A daily closure under the recent support at 1 p.m. 2800 implies that a downward retracement is at play from a technical perspective. It will potentially take the wind out of the sails of the top virus trade across several asset classes.
China’s data on industrial production and retail sales went largely without incident this morning. Industrial production was better than 3.90%. Retail, however, disappointed and fell by 7.50% against a projected 7.0% decline. Stocks initially created ground, but have recaptured those losses with the Chinese data leaving the street in an incomplete situation. Neither provides a strong recovery nor slower image.
Indonesia’s trade balance for April has held up remarkably well this morning to $ -0.35 billion, but flattered to deceive when looking at the components. Exports in April fell by much higher 7.02%, while imports collapsed and fell by a massive 18.58%. That may be enough to stop the recent bullish runs of the Indonesian Rupiah and Jakarta Composite so far. The data suggests that Southeast Asia’s economy suffers from a double embarrassment of falling exports and falling domestic demand. The ending of Ramadan holidays will seriously hide the data for May.
The Asian stock markets trade in a troubled, direction-free range.
The US stock markets performed strongly overnight despite yet another seriously initial number of employees without claims. The allegations showed that another 3 million Americans were on their way to the unemployment queues last week, somewhat worse than expected, but a slight improvement in the week before. Markets were seized by the latter, ignoring the former and sending Wall Street indexes higher, which strongly turned an initial move lower. The S&P 500 climbed 1.15%, NASDAQ rose 0.91%, and Dowe Jones jumped 1.62% despite a serious outlook from Delta Airlines.
Asia could not repeat the same habilitation and decline initially after paying more attention to the disappointing Chinese retail sales data. This sales turnaround has quickly been reversed, despite the New York governor announcing that the state shutdown will be extended until mid-June unless specific criteria are met. It almost certainly put Governor Cuomo on a collision course with President Trump.
A directionless session has seen Asian markets mostly rise into the green. Nikkei 225 has risen 0.40%, with Kospi up 0.20%. The Shanghai composite is down 0.20% and CSI is down 0.40% according to China’s data. The Straits Times has risen 0.20% with Kuala Lumpur rising 0.50%. Jakarta lags behind its impressive trade data; Jakarta Composite has dropped 1.10%. Meanwhile, Australia has risen by the ASX 200 up 0.90%.
The mixed bag of results and a lack of directional momentum suggests that Asia ended the week as directionless as it started.
The US dollar remains content with reach.
Greenback had a directional session overnight, with the dollar index ending almost unchanged at 100.33. The dollar ignored another nightmare, the initial number of unemployed claims, and now it seems to be evenly balanced between the camps with risk-on and risk-off.
In Asia, the greenback has risen higher against both major and regional currencies, though it lacks the steam to suggest that renewed bullish momentum is upon us. Both the Australian and New Zealand dollars continue to give ground after a hard week. AUD / USD has fallen 0.20% to 0.6455 and NZD / USD has fallen 0.25% to 0.5995. USD / CNH is unchanged at 7.1160.
Generally, it seems that foreign exchange markets are waiting to see how events play out elsewhere before setting up their booths.
Oil defies expectations of operating strongly overnight.
Oil continues to surprise and confuse the author by reversing the previous day’s fall to climb vigorously in the night trade. Oil was bolstered by the International Energy Agency’s forecasts for lower oil stocks in H2 2020. It has some logic as economies around the world reopen on a national basis, if not internationally. For example, airlines will Don’t recover soon. Like stocks, it seems that the highest-powered virus markets in energy markets have only taken a vacation, not left the country and will intervene in any recovery hope, no matter how exciting to add for a long time.
However, I note that with the impending expiry of the WTI in June, the skew is towards the head, which suggests that, unlike last month, there are still quite a few short positions to roll. However, I do not expect the fireworks from the previous month to be repeated. Most of these shorts need to be moved by Tuesday. The skew in rolls could possibly explain WTI’s performance overnight and support the contract in the short term.
Brent crude oil rose 6.60% overnight to $ 31.15 per share. Barrel and climbed a further 1.45% today to $ 31.70 a. Barrel. Brent crude has resistance just over at $ 32.10 a. The barrel, and a daily closure above this level opens up for additional technical gains against $ 36.00 per barrel. Support the groin for $ 28.00 per barrel.
WTI increased impressively by 7.75% overnight to $ 28.00 per share. Barrel and has progressed another 0.40% to $ 28.25 per. Barrel this morning. WTI’s next resistance is at $ 29.00 a barrel, though the technical picture is somewhat less clear on topside targets if we have a daily closure across the region tonight. A decrease of $ 25.50 per Barrel suggests the rally will be over.
Gold moves higher with technical buying.
Gold went in overnight, climbing 0.90% to close at $ 1731.00 an ounce, breaking the daily resistance of $ 1725.00 an ounce. Although, a few different theories float around to explain the gold rally, even when stocks outperformed and the U.S. dollar remained unchanged. Most likely, however, the $ 1725.00 break triggered stop-loss purchases, and the increase also drew algorithmic model buyers into the crisis.
Gold is unchanged in subdued trade in Asia, and if progress continues to ease into Europe, the fresh ones may long be vulnerable to the downward price action of the whipping operation at the end of the week; especially if stocks and energy continue to defy gravity. The critical resistance level remains at $ 1750.00 per. Ounce, and until we see a daily closure above this level, I remain cautious about being overly optimistic at these elevated levels.
Bitcoin continues to tease bullish investors.
Bitcoin halving has gone without incidents and theoretically should support the electronic currency going forward, though mining power bills will almost certainly track higher. Bitcoin tried and failed to test 10,000 versus the Dollar yesterday, its third failure there this month.
A more positive risk environment among other asset classes has seen Bitcoin fall by 3.40% to 9460.00 today as risky trades are reduced. A break at the 10,000-mark hard should flush out new buyers, though I’d be hesitant to get too optimistic until it happens.