Home on the ranging

Markets eye US inflation

It was a non-descript session overnight as markets settled into a pre-US-inflation waiting game. Thursday’s data could mean this week seems interminably long if the overnight price action is anything to go by. Investors used the weekend G-7 tax accord to book some profits on equity markets, while the US dollar eased slightly, and US yields ticked higher. But range-trading and profit-taking ruled the roost across asset markets.

That isn’t to say the week won’t have some drama. The US has a series of longer-dated bond auctions this week, with the bid-to-cover ratio closely monitored. There has been little drama of late which means some sudden weakness could push yields up on the surprise factor. China releases its own inflation data tomorrow as well, and the US infrastructure package negotiations continue at a frenzied pace.

One thing that has caught my eye today is my old friend bitcoin. I have previously mentioned that it was forming what looked like a bearish symmetrical triangle. However, its fall through USD35,000.00 of fiat US dollars, backed by the tax-payer revenues of America, triggered a downside breakout. The breakout has a target of USD22,000.00, which could happen in the next few days. Failure of USD30,000.00 will basically put every long position since January 1st in the red, which I believe, will trigger another capitulation trade. Go the FBI.

In Asia, South Korea’s Current Account has fallen to a USD1.91 billion surplus in April from USD7.82 billion previously. It will be interesting to read the full report and see if rising material costs were being felt as per the China import data yesterday. Japan’s Q1 GDP was less bad than expected at -1.0% QoQ. Its pandemic issues are unlikely to make that number look much better in Q2. Given the GDP data is now over two months old, it should not have any market impact. It would not be a typical day without an Australian data beat, and today it is NAB Business Confidence for May, printing at 20 versus 17 in April. The lucky country remains lucky, although once again, Australian markets are showing little reaction.

Looking ahead, Taiwan releases its Balance of Trade for May this afternoon. There will undoubtedly be some impact from Covid-19 restrictions on the export number. Still, I will be more interested in the import side, and whether higher material costs make their presence felt. The burning question will be, if inputs are rising, can Asia pass on rising prices to the customer side for the first time in decades? Cue the inflation music.

The US Balance of Trade and JOLTS Jobs Openings will be of passing interest, but I suspect Wall Street’s attention will be focused on the infrastructure negotiations and Thursday’s inflation data. That, unfortunately, means we will have to endure a few sessions of their schizophrenic tail-chasing behaviour this week until those pictures resolve.

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