Asia Session: Happy Birthday Buddha

South Korea and Hong Kong markets are closed today for Buddha’s birthday, but that doesn’t seem to have stopped the big man’s good karma from washing over financial markets. Financial markets clearly feel that the enlightened path to nirvana is to ignore any bad news, concentrating solely on hope for the future and good news that fits the narrative.

I don’t want to sound like the Grinch who stole 2020 though, and I’ve always been a huge Nirvana fan as well. And to be fair, amongst the COVID-19 economic wreckage, there have been very valid reasons for positivity. Gilead Sciences Inc. presented the results of one of its studies that suggest that its Remdesivir drug has positive benefits on COVID-19 infections. Big tech continues to defy the odds with both Microsoft and Facebook announcing better than expected results overnight. The Federal Reserve left rates unchanged overnight, but Chairman Powell said that the Fed has a lot more monetary capacity as does the government on the fiscal front. The last comments turbo-charged the peak-virus trade overnight.

The markets ignored shocking US GDP data with Q1 GDP shrinking by a much higher than expected -4.80% QoQ. Pending home sales collapsed, and EIA Crude Inventories posted another massive increase of 9 million barrels. We can expect more fun and games in the June WTI contract before expiry. More locally, ANZ Bank in Australia saw profits sink 62% in Q1 and announced a 1.67 billion credit impairment charge, AUD 1.03 billion directly related to COVID-19. DBS in Singapore also announced a 29% fall in profits and its own SGD 1.09 billion credit provision for COVID-19 related impairments. The Federal Reserve itself cautioned of lasting medium-term damage from the COVID-19 pandemic.

Still, financial markets seem intent on looking forwards and not backwards, with the hope that gradual reopening’s of economies around the world, possible treatments, and big-tech earnings holding up as a reason for hope and not despair. I’ll not argue with that or the fact that the momentum is solidly in the hands of the peak-virus bulls now.

This afternoon sees more releases of heavyweight data with German Retail Sales and Unemployment along with and French and Spanish GDP for Q1. All are likely to make grim reading, but today’s focus will initially be ion the European Central Bank. The ECB will leave rates unchanged, but the market is looking for an expansion of the EUR 750 billion Pandemic Emergency Purchase Programme (PEPP). The street is expecting anything from EUR 250 billion to 500 billion to be added to the overall size, reinforcing that the world’s central banks are determined to backstop credit markets no matter what it takes. The ECB is unlikely to disappoint, and the news will likely give asset markets another boost into a holiday weekend.

The US Initial Jobless Claims are expected to show another jump of 3.5 million Americans heading to the unemployment queue, joining the other 26 million officially there. A normally horrific number if released in isolation, its expected fall from last week’s 4.4 million increase will perversely be greeted with relief, as the market applies a falling rate of infections logic to it. An unexpectedly much larger number is probably the only set of data today that could derail the peak virus momentum.

Today is a technical Friday in Asia, almost all of the region, and much of Europe, are closed tomorrow for the May 1st holiday. That may temper the bullish momentum in Asia with investors reticent about going into a long weekend too loaded up on the recovery trade. Nevertheless, Buddha’s birthday karma looks set to wash over financial markets for a day or two yet.

Asian equities power higher on peak-virus hopes and central bank backstops.

Wall Street enjoyed a robust overnight session as the Federal Reserve pretty much telegraphed that it would backstop financial markets from here to eternity. Facebook and Microsoft produced impressive results, beating expectations, with even Tesla announcing that it is maintaining deliveries. The S&P 500 rose 2.66%, the NASDAQ powered 3.60% higher, and the Dow Jones rose 2.19%.

The peak virus trade received another boost from robust Chinese PMI data this morning, meaning that Asia markets had a green light to follow the overnight Wall Street price action. The Nikkei 225 has jumped 2.90% this morning. China’s Shanghai Composite is 1,40% higher, and the CSI 300 has risen 1.20%. Singapore’s Straits Times has rallied 2.10% while Jakarta is up 2.60% and Kuala Lumpur by 1.40%. Downunder, the Australian ASX 200 and All Ordinaries have powered 2.75% higher.

Unless some nightmarish headline bomb hits markets in Asia, the bullish momentum will remain intact for the rest of the session. Europe should also move higher again ahead of more easing from the ECB. For now, data that is backwards-looking and doesn’t fit the positive narrative, will be ignored entirely.

The US Dollar’s retreat continues as the street piles into the recovery trade.

The US Dollar’s slow retreat this week continued overnight, as a dovish Federal Reserve, tech earnings and COVID-19 treatment hopes juiced up the peak virus trade. The dollar index basket of major currencies fell 0.36% to 99.50 as EUR, JPY, GBP and CAD all made substantial gains versus the greenback.

A strong rally in oil prices and Norway’s announcement of production cuts was music to the ears of Petro and resource currencies. USD/MXN fell 2.30% to 23.7690, with the Peso looking set for further gains to 23.0000 after suffering during oil’s wipe-out. The Malaysian Ringgit continue to find friends as well, USD/MYR falling to 4.3400 overnight. Those gains have continued in Asia today, with the USD/MYR falling o.60% to 4.3140 today, just above its 50-day moving average at 4.3100, and not far from my 4.3000 targets for the week. Malaysian markets will be closed tomorrow.

The Antipodeans continue to out-perform, most notably the resource-heavy China proxy Australian Dollar. AUD/USD rose 1.0% overnight to 0.6560, its 100-day moving average. Although unable to move higher in Asia, it seems just a matter of time before 0.6600 is tested, and that higher levels await.

Oil rallies impressively with volatility continuing to sort the men from the boys.

Oil volatility continues to leave markets breathless, with strong rallies overnight and today by both Brent and WTI. A dovish Federal Reserve, and production cuts announced by Norway turbo-charged oil overnight, already in a peak virus acceleration mode.

Brent crude climbed 8.50% overnight to $22.80 a barrel and have leapt 9.50% today to be trading just shy of $25.00 a barrel. WTI futures rose a breath-taking 25% at one stage yesterday, before settling 15.50 % higher at $15.50 a barrel. The scale of WTI’s comeback ios laid bare when one notes it traded just shy of $10.0 a barrel on Monday. Not to be outdone, WTI has risen 14.15% in Asia this morning to $17.15 a barrel.

Liquidity issues in the June WTI contract mean that moves will be highly exaggerated. But stripping that out, the underlying rallies in both Brent and WTI are impressive and have real momentum. With the street so intent on loading up on the virus recovery trade, the massive supply-demand imbalance is temporarily forgotten and picking a short-term top is a hazardous business. WTI could quickly move to $20 a barrel and Brent to $30 a barrel in this environment.

In the context of the size of the overall decline in oil prices since the pandemic began, the recovery is still minuscule. And even if Brent and WTI were to rise to those target levels, it would be minuscule still. No one should mistake this week’s rallies as the beginning of the end of the destruction wrought in the world’s energy markets.

Gold remains anchored by opposing forces.

Gold remains the forgotten war of the world’s financial markets, with the peak virus recovery trade cancelling out the extreme monetary easings by the world’s major central banks. The net result has been that this week, gold has remained anchored in a comparatively narrow $1700.00 an ounce to $1730.00 an ounce range.

That situation is unlikely to change in the next 24-hours, with an increase in monetary easing by the ECB today balanced out by capital pouring into equity and non-US markets on post-pandemic hopes. One cold and should argue with the underlying logic, but not with the short-term sentiment. As such, we expect gold to remain in a tight range. Asia has shown no interest in gold today; it remains unchanged at $1711.50 an ounce.

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