US equity rally pauses

US equity markets trading sideways

It was a mostly sideways session overnight in New York, the US dollar remained steady, oil held near recent highs, and the equity rally paused for breath. The dearth of data releases globally continued although the second-tier data from the US continued to be positive. The Case-Shiller House Price Index and US House Price Index releases rose as expected, while the Redbook activity report rose to 21.40% for December YoY, and the Richmond Fed Manufacturing Index and Dallas Fed Services Index both beat expectations.

Although omicron cases in the US and Europe amongst others, continue to surge, it has yet to make its presence felt negatively in economic data. Europe’s restrictions will have a tail impact but, for now, markets are overwhelmingly pricing in the latest variant as a milder incarnation, despite its easier contractibility. With market activity much reduced for the holiday season, investors continue to tentatively price in a global recovery hitting a minor bump, and not a pothole.

The Chinese government continues to make soothing comments about lending to the real economy to support more balanced and inclusive growth next year, with the property sector woes taking a backseat, for now. Markets have quickly put the complete lockdown of the city of Xi’an behind them. The narrative will only swing back to negative if the virus escapes the city boundaries and initiates outbreaks in other Chinese cities.

Asia’s calendar remains thin this week, in line with markets elsewhere. Singapore’s Import and Export Prices, and PPI, will be of passing interest, if only because inflationary pressures continue to rise in the City-state. Higher than forecast YoY numbers could cause some reassessment of the Monetary Authority of Singapore’s tightening path, although local equities seem as immune to that reality as they do everywhere else.

The most interesting data tonight will likely be US official crude oil inventories, where omicron’s rampage could show up in higher oil derivative stockpiles. That may give the oil recovery some food for thought but is very unlikely to derail it. The fast-money tail-chasers inhabiting the oil market recently look like they are finally taking a holiday break instead of drinking too much coffee.

South Korean Industrial Production tomorrow and South Korean Inflation and official China PMIs on Friday will be the focus of regional traders still at their desks. Otherwise, we remain at the mercy of headline-driven volatility, a theme that has dominated December.

The major mover overnight was bitcoin, which fell by 6.70% to USD 47,560 of fiat US currency. I can’t see any news behind the move, and I suspect year-end book squaring into thin market conditions exaggerated the range. There is nothing to suggest that Bitcoin’s recent USD 45,000 to USD 52,000 is under threat. Only a daily close above or below those levels hints that a new directional move is in play. Although I consider the crypto space as a whole to be a giant case of the Emperor’s New Clothes and the home moronic speculative banality, I do acknowledge it is a tradeable if not investable, “asset class,” and perhaps more fun than the casino. In that respect, only a weekly close below USD 40,000.00 will have me concerned that another major downside correction is in play.

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