For those of you who have never seen the original Leonardo DiCaprio movie, go first. The film itself is a sci-fi thriller involving Mr. DiCaprio who sneaked into people’s minds to steal commercial secrets. Not in itself relevant to anyone except law enforcement on the hill. The challenge for viewers is the many levels of reality that poor Leo must navigate within consciousness. Amazing visual effects aside, viewers, along with the cast, are left wondering what is real and what is not, with only a spinning top to guide them.
No matter how many times you win a summit now, the world’s risk-taking risk-taking action, led by the perpetual V-shaped optimists from Wall Street, has made many of us wonder what reality we might actually be in? It’s a fair question, and I ask myself that and get asked many times every day by others. Wall Street posted yet another excessive performance on stocks and oil overnight, but it was the US dollar that drew attention.
Having lagged behind the global recovery seen elsewhere, the foreign exchange markets appear to be accelerating their participation. The rotation out of the long position in the US dollar gained more momentum overnight, with trade-centric currencies such as the Australian dollar again, notable results. I notice that one of the favorite ways for markets to express a bullish sentiment, AUD / JPY, also increased by more than 2.0% overnight. It implies that there is still plenty of momentum in the global recovery trade, even if it is a reality that is a contradiction for most of us. But then I had to use tear gas to go to church, but here we are.
The two critical drivers for global markets are all buying the rally is the scale of monetary policy facilitated by the world’s central banks and the relaxation of nationwide COVID-19 lockdowns across the globe. Interest rates are now zero or less in most of the developed world, which means that the search for dividends, any dividends, continues. That is unlikely to change soon. The end of the COVID-19 shutdown across the globe has bought the hope that economic activity will rebound sharply. This dissertation is full of gaps; not least the chance that secondary outbreaks that reverse the process hoped that no vaccines would appear and that international travel, the lifeblood of several sectors, would not return soon.
Until one or both changes, and realistically it will be firm with the COVID-19 side of the equation, momentum is unlikely to slow down as global markets look for dividend and recovery opportunities. Rather, this reality is like arguing to have a discussion with Ms. Halley. Somehow your point of view is always heard, but ultimately subordinated by the other side. It may not be a reality that you agree with or understand, but it is what it is.
However, back to economic recovery, China seems to be turning a corner after buying COVID-19 under scrutiny a while ago. China’s PMI for Caixin Services sent a much larger-than-expected jump into an expansive area, printing an impressive 55.0. Even Hong Kong’s PMI for May lifted itself off the floor, climbing to 43.9 from 36.9 previously, continuing the trend of higher lows seen from global releases on Monday across Asia. China’s numbers are particularly pleased after moving into an expansive area earlier this week with the manufacturing number. As a whole, it suggests that China and Asia will continue to recover slowly after the pandemic shutdown. That should give the Asian stock markets an extra boost today.
Asia shares power higher.
Wall Street’s positive session overnight is inundated with Asia this morning as global recovery trade continues to gather steam. An excellent PMI from Caixin Services from China has reinforced the regional view that a modest recovery is underway, further increasing regional stocks.
Nikkei 225 has risen 1.60% today. South Korean Kospi, with its high beta for China and the global recovery, is up higher by 2.60%. The mainland markets are also up 0.40% with the Shanghai Composite and the CSI 300 by 0.65%. Hang Seng has jumped 1.50% with security issues temporarily pushed from the front. The Straits Times is also 1.50% higher. A similar story is told across Australian and Southeast Asian markets.
With no data on note likely to affect sentiment, the bullish state is set to continue in Asia, with only unexpected negative headlines likely to disrupt the apple cart, and then only temporarily. For now, US-China fears of trade have been overcome by the thoughts of the street.
The tumult of the US dollar continues.
The momentum for the rotation out of the US port and for more risk-seeking recovery positioning shows no signs of diminishing. The night over, the greenback suffered a number of setbacks, particularly again against commodity currencies, but also against developed markets.
The only notable exception was against the Japanese yen. USD / JPY drifted 1.0% to 108.65, smashing through its 100 and 200-day moving average (DMA) at. 108.30. However, the rally was a function of a healthy buy in Yen cross positions such as AUD / JPY, CAD / JPY and NZD / JPY, and not a function of Yen falling out of favor against the dollar. Nevertheless, after dropping between 107.00 and 108.00 for a month, the USD / JPY now looks to try 109.50 initially, possibly as high as 111.50.
The Australian dollar continued its strong rally against the greenback, jumping 1.50% again overnight to 0.600. AUD / JPY buying has seen another 0.60% increase to 0.6940 this morning. AUD / USD probably seems to be testing 0.7000 and 0.77100 sooner rather than later. The strong performance in commodity currencies such as AUD and CAD appears to be diminishing at present.
In regional Asia, local currencies have made additional gains relative to the dollar. The Singapore Dollar has risen almost 1.0% in the last 24 hours, with the USD / SGD falling through its 100 DMA at 1.4050 overnight, heading to 1.3970 this morning. The USD / SGD now targets a return to 1.3800 initially assuming rally in developed market currencies and CNY continues elsewhere.
The Indonesian Rupiah continues its remarkable comeback this morning following the extended Eid holiday. IDR has been a quiet yet global recovery proxy for a few weeks now following the March massacre. The USD / IDR has fallen from 14,750 yesterday to 14,200 today with the government’s COVID-19 lockdowns to be completed tomorrow night. In the process falling through the USD / IDR 200-DMA of 14,420, a bullish technical development.
Most importantly, the strengthening of local currencies in Asia gives central banks in the region breathing room to further facilitate monetary policy if needed.
Oil continues to recover losses.
Oil’s rally shows no signs of slowing as it runs the overtures in the global stock and currency recovery market, with OPEC + likely to extend its 10 million barrels a day cuts for at least a month. Brent crude oil rose 3.50% to $ 39.50 per share. Barrel, and WTI rose 4.0% to $ 36.80 a barrel. Barrel.
Asia continues to look higher for positive Caixin PMI data this morning, with Brent crude rising 1.30% to $ 40.00 per share. Barrel, and WTI amasses 2.0% to $ 37.60 a barrel. Barrel. A close to $ 40.00 a barrel of Brent crude is a particularly bullish technical development. It puts additional winnings at $ 45.00 per Barrel to close the $ 5.0 gap in daily chart prices.
The week’s first U.S. commodity inventory is released tonight, with EIA crude stocks expected to drop to 3 million barrels from 7 million last week. In the current climate, even an unexpectedly large number is likely to see only a break in the rally. Only a serious disagreement arising from OPEC + this week likely sap the oil’s strength.
Gold falls on a strong upswing sentiment.
Gold gave up all the recent gains overnight as the rising recovery signal elsewhere and no new US-China trade developments caused investors to reduce port positions. Even a much lower US dollar gave gold no consolation, it fell by 0.80% to $ 1725.00 per share. Ounce, where it remains unchanged in directionless Asian trade.
Gold failed at its rising trend line resistance, set at $ 1741.00 an ounce overnight, its second failure in as many days. This line is at $ 1743.00 an ounce today, and with several failures above $ 1755.00 per ounce in May, the resistance is increasingly formidable.
Assuming that the global recovery rally maintains its strength in other markets, gold is looking increasingly likely to the lower end of the recent range of $ 1695.00 to $ 1645.00. Beleaguered bullish gold traders can take comfort in the fact that momentum remains weak in both directions. Thus, a major downward breakout is as unlikely as a major topside now.