Asia sees a modest relief rally

Asia equity markets edge higher

The Omicron/Build Back Better (BBB) sell-off seen yesterday morning in Asia, continued throughout the day, sweeping into Europe and US markets. However, in line with my view that tail-chasing range-trading will dominate December, Asian equity markets are rising sharply today. With no news of note hitting the wires, it appears that short-covering in US index futures has been enough to attract the fast money back into local markets in a classic follow-the-leader move.

Similarly, the US dollar retreated slightly overnight as well as traders booked short-term profits on long positions, while oil, which looked to be suffering some ugly stop-loss price action in thin markets overnight, recovered to finish only slightly down. Notably, the risk-sentiment three amigos, the CAD, AUD and NZD, didn’t rally at all and remain near year lows. That is as good a warning to the fast-money FOMO gnomes as any, that sentiment remains exceedingly fragile, complicated by rapidly thinning liquidity in asset classes ahead of the holiday season and year-end.

We are one headline away, be it omicron or something else, from normal service resuming. I’ll say it again, December is about V for Volatility and not directional market trends. Searching for conspiracies or rays of hope on every intraday move is a fool’s errand. A case in point is the Turkish lira which had the mother of all rallies overnight, falling 11.0% intraday, but finishing the overnight session over 20% higher after President Erdogan announced new policy measures to protect the lira savings from currency depreciation. A look through the new measures left me scratching my head about how they would ever be enacted and executed, especially in a short time. USD/TRY is already 2.40% higher in Asia and all I can say to President Erdogan is thanks for the dip.

The data calendar in Asia is threadbare once again, yesterday’s China Loan Prime Rate announcements being the highlight of the week for the region. The action will be in the US tomorrow with some old news Q3 GDP and PCE Prices, followed by the far more relevant US Personal Income/Spending and Durable Goods for November, plus the weekly Jobless Claims, on Thursday. There is also a swath of minor inflation data released from around the world that will probably only be interesting if it shows large falls that aren’t due to baseline effects. Otherwise, US politics and virus headlines will continue to dominate proceedings.

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