Meta makes Asia feel better

Equity markets are higher in Asia today as US index futures rally after Meta managed to post minuscule growth in user numbers overnight along with robust financials. The results came too late to save OTC trading on Wall Street from a sideways day, but post-close extended trading has allowed the FOMO gnomes, always on the lookout for any sliver of a reason to buy, to work their magic in Asian hours. Nasdaq futures have rallied an impressive 1.25%, dragging S&P minis 0.70% higher.

Still, we shouldn’t rule out Wall Street returning to Seeker’s mode and singing The Carnival Is Over. This evening, both Apple and Amazon release quarterly results and I would argue these are much bigger dogs than Meta. Supply change disruptions, material price inflation and a cloudy outlook on the economic growth front are just some of the potential headwinds for both. I wouldn’t argue against a sparkling set of financials for Q1, but the real gold will be in their forward outlooks. Depending on what they say, today’s equity rally will either be real gold, or fool’s gold.

Looking outside of the tail-chasing circus we know as the equity market; the real world continues to paint a much more cautionary tale. China’s covid-zero concerns continue overhanging Asia, despite more promises of an infrastructure-spending feast from Chinese officials. Adjusted for inflation this year, the actual rise in spending on infrastructure, and thereby growth, isn’t so special on the mainland.

Euro slide continues

The Russian ban on gas exports to Bulgaria and Poland sent natural gas prices surging in Europe again, and saw the euro take another hammering. Oil prices held onto their initial gains from Tuesday after the announcement but didn’t add anything to them. If Russia expands its natural gas bans, it won’t stay that way and there seems to be a great deal of complacency and Ukraine fatigue in the market right now outside of Europe. Oil itself could be about to move lower though, as the Financial Times is running a story saying some of Europe’s largest energy companies are preparing to pay for energy imports via rouble accounts opened at Gazprombank in Switzerland. If true, it will be a huge win for the Kremlin and pit EU politicians against European private companies. Either way that you look at it, it is unlikely to be supportive of the euro.

Yesterday’s inflation print above 5.0% in Australia has the market scrambling to pencil in a rate hike from the Reserve Bank of Australia at its meeting next week. I’m still 50/50 on this one, especially with a federal election due later in the month. June will be a live meeting though. AUD/USD rallied briefly after the inflation release but has since given all of that back. As risk sentiment indicators, the AUD, NZD, and CAD, and one could argue, Her Majesty’s British pound, have taken a beating recently. Federal Reserve rate hikes, next week’s FOMC meeting, China growth slowdown, global stagflation, the Ukraine/Russia war, one has an all-you-can-eat buffet of risk to choose from at the moment. If you swat out the incessant buzzing from the equity market, other asset classes are universally suggesting a plethora of global headwinds.

Today’s data releases in Asia have been a mixed bag. South Korea Business Confidence in April remained robust at 87. That hasn’t helped the Korean won, though, with the South Korean finance minister grumbling that the won had fallen too fast. Expect more intervention from the Bank of Korea ahead. Japan’s Preliminary Industrial Production disappointed, rising just 0.30% in March. However, Retail Sales outperformed, rising by 0.90% in March YoY. An easing of social distancing restrictions in Japan could account for the surprise. All eyes are on the Bank of Japan policy decision due shortly.

The BOJ policy decision will be the highlight of the Asian session unless we get a headline bomb from somewhere. The decision could emerge any moment now but there is zero chance of the BOJ changing course on monetary policy. It will remain ultra-dovish, as evidenced by the BOJ standing in the market this week to buy unlimited amounts of 10-year JGBs to cap yields at 0.25%. In breaking news, the Bank of Japan has left policy unchanged, and the USD/JPY has jumped 1.0% higher to 129.70.

Keep an eye on developments out of Indonesia today. I do love this country, but the rapid policy about-faces by the government can be infuriating. Last night, Indonesia spoofed commodity markets once again, reversing the guidance of the day before that reversed the guidance of the President the day before that, and adding crude and refined palm oil back onto the export ban. That should be good for substitutes like soybean oil but isn’t good news for food and FMCG products globally. Please refer to my note earlier in the week for my views on food nationalism and the potential food crisis in 2022.

Europe releases a swath of second-tier data today, but Eurozone economic, industrial and consumer sentiment indicators, along with German Inflation will be the focus. Eurozone sentiment in April will continue to take a beating for obvious reasons, weighing on the euro and Eurozone equities. In all likelihood, the Financial Times story on European energy companies capitulating and paying for gas in roubles will capture the headlines. A collision course between Europe’s leaders and its private sector will be as good a reason to sell into any currency or relief rally as any.

The US releases Advance Q1 GDP this evening. The headline QoQ number is expected to retreat dramatically to 1.10% from 6.90% previously. That doesn’t tell the whole story, though, thanks to front-loaded inventory distortions. More important will be the consumer components. PCR Advanced Prices data for Q1 has upside risk. A number substantially higher than the previous quarter’s 6.40% will have the Fed tightening noises going up another notch. Having said that, I am sticking to my guns and saying that the Apple and Amazon results will set the tone for the New York session.

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