Data desert allows sentiment to rule

With this week’s global data calendar looking more parched than the Australian outback, markets have been left to their own devices thus far, drifting on the tides of sentiment swings and rent-a-comment from central bank officials. Overnight, the Fed’s semi-annual Stability Report highlighted risks from China’s real estate sector and inflation that becomes persistent, not transitory, although you can spin that term however you want. The report noted the dangers of inflated asset prices and potentially ugly corrections, which begs the question as to why so many central banks, including the Fed, are quantitatively easing into it? We also had a plethora of central bank speakers, including Bank of England Governor Bailey, who might hike if inflation is sticky, and the Fed’s Bullard, Clarida and Evans, who were two, one, lift-off, I mean zero for rate hikes in 2022. The see-saw remains as balanced in the monetary playground as ever.

With nothing of note to sink its teeth into, the street continued moving back into its happy place, interest rates lower for longer, buy-everything except for the US dollar. The FOMO gnomes of Wall Street managed to push equities slightly higher to yet another record close; bond yields drifted a little higher after falling on Friday. Still, it was probably most clearly seen in currency markets, where the US dollar retreated overnight. Even gold rallied once again overnight, after holding on to its rise through USD 1800.00 on Friday.

Through the US dollar rally, currency markets have probably most strongly reflected the Fed-taper and its future implications, having refused to budge from its highs even as the perpetual motion mega-bulls regained ascendency in the equity and bond markets. As a result, it likely has the furthest to retreat this week unless we get a shocker from US inflation data tomorrow. Even if inflation explodes higher, I am struggling to see it as an inflexion point in the central banks of the world’s QE determination to make the human race as economically unequal as possible in the shortest amount of time.

In Asia today, what scraps of data there are, have been modestly positive. New Zealand Credit Card spending rebounded in October, while Australia’s NAB Business Confidence jumped to 21 in October as New South Wales, Victoria, and the international border reopened. QoQ GDP for Q3 in the Philippines outperformed as well, rising by 3.80%. I would say that after a long and arduous road, the light at the end of the tunnel beckons for the Philippines, but I don’t want to hex it. Malaysian Industrial Production and Unemployment should show similar green shoots later today, as will Indonesian Retail Sales with life back to normal here in Jakarta, including the traffic and daily Covid cases in the low 100’s across the archipelago. I even went back to rugby training the weekend before last, where I promptly tore a tendon in my calf once again. It’s like I never left.

Markets eye central banks for direction

This afternoon, Germany’s ZEW Index will be of marginal interest, with more concern in Europe likely focused on surging virus cases and possible restrictions returning, thanks to stalled vaccination programmes across the continent. US PPI tonight is likely to climb to 0.60% MoM, but it will be tomorrow’s headline inflation data that grabs the headlines. The most volatility is likely to be generated by central bank officials, with the BOE’s Bailey, the ECB’s Schnabel and the Fed’s Powell, Daly, and Kashkari all speaking. Apologies if I missed anyone out. Watch also for the possibility that President Biden announces SPR releases to take the edge off surging gasoline prices. Otherwise, I believe today will be one of range trading with occasional snaps of volatility generated by intra-session news headline tickers.

The crypto-space looks to be the only “asset class” moving today. Both digital Dutch tulips, bitcoin and ether, have hit record highs this morning as the street continues to buy on a positive technical picture, a lower dollar, and Elon Musk’s Twitter account. I am girding myself for more “institutional experts” appearing on the news wires droning on about becoming “mainstream assets.” Whoever bought the Squid Games tokens probably isn’t feeling the same way. These experts usually only appear when cryptos rally, and I have a pile of Panadol ready to take the edge off my headache.

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