Delta doubts fade

North American markets continue to put Monday’s “delta-dip” behind them, with Wall Street rising once again overnight on strong corporate earnings and despite a slightly weak 20-year bond auction. Asian equity markets are also trending higher in a follow-the-leader play as the data calendar remains ultra-light with a dearth of market-moving news headlines. Japan markets are closed today and tomorrow for national holidays, which will likely reduce volatility until the end of the week.

Other asset classes also unwound their Monday delta-dip overnight as nervousness faded and the buy everything in a zero per cent world equilibrium reasserted itself. The US dollar pared recent gains, gold retreated slightly, and US long-dated bond yields edged higher. Oil rose impressively despite higher official US crude inventories, and my old friend bitcoin staged an impressive rally.

Bitcoin rises after Musk comments

Bitcoin jumped nearly 8.0% from below USD 30,000.00 of fiat US currency, dragging ether and some other digital things higher with it. Our old friend Elon Musk was behind the move, stating he owned a few digital coins and might start accepting bitcoin again soon for Tesla’s. Somehow, in the space of a couple of months, Mr Musk feels that the bitcoin mining industrial complex is well on the way to pivoting to more “green” energy use. That is an impressively fast pivot to green energy, as was the timing of the comments one might observe, coming just as bitcoin was in danger of breaking multi-month lows. Despite the bounce overnight, bitcoin’s technical picture remains as fragile as a blockchain made of glass.

In Asia today, the only data point of note will be the Bank Indonesia policy decision. With inflation benign and growth downgraded by the central bank themselves, BI could potentially reduce policy rates today. However, along with the Malaysian ringgit, Thai baht and Philippine peso, the Indonesian rupiah is part of an unloved ASEAN club of Covid-currencies at the moment. With one eye on USD/IDR, which is trading at 14.500.00 today, Bank Indonesia is most likely to remain unchanged, although they may announce some new liquidity measures at the periphery.

Today’s main event will be the European Central Bank (ECB) policy meeting. This meeting has attracted more attention than is usual as markets await further details around how the ECB will police its new fixed 2.0% inflation strategy/target. With core inflation expected to ease well below 2.0% in 2022, the implication is that the ECB will have to maintain an aggressive easing bias for the foreseeable future to try and meet that 2.0% target. Much of the curo’s weakness this week can be attributed to those expectations, especially given that markets feel the Fed is much closer to tapering than the ECB is. Whatever the details, it should be suitable for some binary volatility in EUR/USD later today. It wouldn’t surprise me in the least to see EUR/USD either at 1.1600 tomorrow or nearer to 1.2000.

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