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Standard Chartered Cuts African Private Equity Team

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Standard Chartered

The head of Standard Chartered’s African fund, which has $800m invested, is set to leave the bank as it trims its private equity team on the continent, its global head of private equity has said.

Peter Baird, who was appointed in 2011, with  20 years experience in private equity and investment banking, would be replaced by Ronald Tamale, a former Goldman Sachs analyst, CEO of Standard Chartered Private Equity, Joe Stevens, told Reuters on Monday.

Baird declined to comment. It was not clear if he quit or was removed.

Many of Standard Chartered’s investments are in Nigeria, where subdued oil prices have pushed the economy to the brink of recession and banks have wrestled with acute foreign exchange shortages.

African economies generally have struggled over the last year with lower commodity prices, rising government debt and weakening currencies.

Yemi Osindero, head of Standard Chartered’s West Africa private equity business, is also leaving the bank, along with his colleague Nana Dankwa, to start an independent African fund, a Standard Chartered private equity source told Reuters.

Stevens said there would now be eight Africa specialists working on its private equity business.

However, two private equity sources close to Standard Chartered’s fund said there would be five staff working directly on the Africa private equity team, down from 11 a year ago.

Goldman Sachs and Blackrock are among the investors in the fund, two industry sources said.

Stevens said that the reduced staff numbers were in line with its broader strategy and its fund was performing well, despite some economic challenges in Nigeria.

“This is part of a strategy to be leaner, more efficient and more integrated,” Stevens said, adding that, “Our portfolio in Africa is in very strong shape. Africa remains a key part of our strategy.”

Standard Chartered’s Africa investments include Union Bank , aluminium can manufacturer GZI and gas-focused explorer, Seven Energy, all in Nigeria.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Oil Drops Below $100 a Barrel Amid Recession Concerns

Global oil prices plunged on Wednesday as concerns over demand outweighed supply concerns. Energy investors fear recession would hurt demand regardless of current supply challenges being faced by the OPEC and allies due to Russian sanctions.

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Oil

Global oil prices plunged on Wednesday as concerns over demand outweighed supply concerns. Energy investors fear recession would hurt demand regardless of current supply challenges being faced by the OPEC and allies due to Russian sanctions.

Brent crude oil, the international benchmark for Nigerian crude, plunged from $114.70 a barrel on Monday to $98.49 a barrel on Wednesday before pulling back to $100.21 a barrel on Thursday at 1:57 am Nigerian time.

The U.S. West Intermediate Oil fell to $93.15 a barrel on Wednesday before paring losses to $95.13 per barrel on Thursday.

Both contracts recorded their largest daily drop since March on Tuesday on recession fears and other bearish pressures, which also kept a lid on Wednesday’s price rise.

Oil prices have seen a knock from a resurgent dollar, which is holding at a 20-year high against the euro and multi-month peaks against other major currencies.

A stronger U.S. dollar usually makes oil more expensive in other currencies, which could curb demand.

Renewed concerns of COVID-19 lockdowns across China could also cap oil price gains.

Adding to the downward pressure on prices, all oil and gas fields that were affected by a strike in Norway’s petroleum sector are expected to be back in full operation within a couple of days, Equinor said on Wednesday.

Norway’s government intervened to end the strike on Tuesday.

But analysts expect a quick resurgence in oil prices as supply tightness persists, pointing to front-month spreads which have held up despite Tuesday’s price fall.

Brent’s six-month market structure was in steep backwardation of $14.82 a barrel, little changed from the previous day. Backwardation exists when contracts for near-term delivery of oil are priced higher than those for later months.

“The price action overnight, with both contracts trading in near 15 dollar ranges, hints more at panic and forced liquidation, than a structural change in the tight supply-demand situation globally,” said Jeffrey Halley, a senior market analyst at OANDA, adding that oil prices may be in danger of overshooting to the downside.

Meanwhile, Caspian Pipeline Consortium (CPC), which takes oil from Kazakhstan to the Black Sea via one of the world’s largest pipelines, has been told by a Russian court to suspend activity for 30 days, although sources said exports were still flowing.

Operations at Kazakhstan’s giant Tengiz oilfield were not disrupted by an explosion on Wednesday and were continuing, the operator said, after the blast killed two workers and injured three.

 

 

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Recession Meltdown

Recession fears buffeted markets overnight, with the price action across various asset classes looking like a self-sustaining negative feedback loop, triggering more stop losses as prices slumped and dragging in trend-following momentum-hunting fast money.

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

Recession fears buffeted markets overnight, with the price action across various asset classes looking like a self-sustaining negative feedback loop, triggering more stop losses as prices slumped and dragging in trend-following momentum-hunting fast money.

Europe endured a torrid day as the Norwegian oil worker strike proved the last straw for an energy-starved Europe. European equities plummeted and rightly so, as Europe’s energy-from-Russia Achilles heel was cruelly exposed. The Euro also capitulated, EUR/USD taking out 1.0350 on its way to a 1.50% loss to 1.0260. Sterling and UK equities were also hammered by the extra headwind of political instability as three senior ministers resigned overnight with immediate effect. There may be some respite for Europe today though as the Norwegian Government imposed a settlement on both sides effectively ending the strike. It is likely to be temporary.

In the US, equity markets opened much lower, but US bond yields outdid them, slumping on recession nerves overnight and sending the US 10-year down to 2.805%, leaving the 2-year 10-year yield curve teetering on inversion. Perversely, the slump in US bond yields, which might also be due to haven inflows and not just recession fears, saved the bacon of US equity markets. US stocks reversed most of their losses, and ironically, the Nasdaq actually rallied to a 1.75% gain. The still-richly-valued growth stocks of the Nasdaq are the most interest-rate sensitive on US markets, and small moves in the risk-free discount rate have outsized price impacts in these environments. Still, the Nasdaq gains looked like a mechanical rear-guard action and not a brave new dawn. A US and Europe recession won’t do their ambitious valuations any favours either.

The big winner overnight was the US Dollar, which rallied imperiously versus both developed and emerging currencies. A sign of the nerves around US Dollar strength came from China today, which set a much weaker Yuan fixing rate of 6.7346 versus the US Dollar, as it glanced around at the slump in other Asia currencies overnight. The only winner was the Japanese Yen. USD/JPY held steady overnight at 135.90, to my great surprise, as the US/Japan rate differential plummeted lower. However, it has immediately fallen by 0.50% to 135.15 in Asian trading. As I have said previously, the long USD/JPY has become a dangerous one as the primary reason for it occurring in the first place, the US/Japan rate differential narrows sharply.

Oil prices also slumped overnight on recession hype, and I’ll talk about that later. Ironically, one of the night’s outperformers was Bitcoin, which reversed intraday losses to close unchanged at $20,200.00. I can only surmise that the Nasdaq’s rally lifted Bitcoin as well so that’s the short-term correlation to watch now, although it has already fallen 1.80% to $19,800.00 this morning. My line in the sane for Bitcoin remains $17,500.00, everything above that will be noise, failure should trigger another wave of margin stop outs among the geniuses conjuring 20% returns out of thin air.

Commodities also slumped overnight on recession fears, notably copper. But as a grouping, hard and agricultural commodities look to have peaked a few weeks ago except for European natural gas for obvious reasons. Gold finally fell below $1780.00 an ounce overnight, an ominous technical development. But spare a thought for palladium. It is trading at $1909.00 an ounce this morning, it’s hard to believe it traded at $3400.00 an ounce in early March.

Asian markets are starting the day on the back foot for different reasons. The PBOC USD/CNY fix today will have regional central bankers looking over their shoulders, although looking at the price action of pairs such as USD/INR and USD/IDR overnight, it looks like regional central banks are increasing their US Dollar selling. Mostly, though, it is China and covid zero that are weighing on the sentiment in Asia, which was going to be fragile anyway. As I have said till I am blue in the face, covid zero means covid zero in China, not one and down and we all live happily ever after. The City of Xi-an has enacted a series of restrictions overnight, and 9 districts of Shanghai are undergoing mass testing. Chinese authorities will try, initially, a district-by-district approach to restrictions, But nobody should be under any illusion that they won’t go harder and faster if needed. As I’ve said before, China needs to get lucky 100% of the time, omicron has to get lucky once. This remains a key risk factor too often ignored by anybody pondering China markets in 2022.

The Asian data calendar is empty today except for Malaysia’s Bank Negara policy decision. The market is locked and loaded for another 0.25% rate hike to 2.25% and I won’t disagree. With USD/MYR testing 4.4200 this morning, they won’t have a choice. No rate hikes likely see USD/MYR starting with 4.50 in double time. South Korea, the Philippines and Indonesia all face the same unsavoury choice in the weeks ahead at their policy meetings, especially with another Federal Reserve hike looming at the end of the month.

On the subject of the Fed, the noise will increase that Fed will now have to mollify the pace and size of its rate hikes. Unfortunately, inflation in the US, like elsewhere, is showing no signs of abating and the data recently has really been that bad, much like Australia. This is more likely to be a story for Q4. If the US JOLTs Job Openings remain at 11 million or above, and the US Non-Farm Payrolls is comfortably above 250,000, there will be no sensible reason for the Fed to blink. Most of all, it is a credibility issue. Having got transitory inflation so utterly wrong and stubbornly clung to a dogma past its sell-by date, if the FOMC blinks now, they may as well do an Elvis and leave the building. Puppies and kittens don’t need to be trained to chase their tails, we certainly don’t need it from our central banks, who aren’t even cute to boot.

This afternoon we get German Factory Orders and Pan-Europe Retail Sales. The releases won’t make good reading and could heap more pressure on the Euro and European equities, although I don’t discount the Norwegian oil strike settlement giving both a temporary reprieve. US JOLTs Job Openings will cause recession head-scratching above 11 million, but June’s ISM Manufacturing PMI for June and its activity, prices, new orders, and employment sub-indexes will probably decide the direction of travel in the short-term. The FOMC Minutes afterwards will probably be discounted somewhat given market developments over the past two weeks.

Asian equities slump on China lockdown fears.

US equities endured a torrid session overnight, dropping initially, but then rallying hard as US yields fell across the curve. With markets racing to price in a US recession, the US equity performance was somewhat counterintuitive with the rate-sensitive Nasdaq outperforming. If US yields find a floor after the US data released tonight, Wall Street’s recovery could find itself flagging. The S&P 500 finished 0.16% higher, the Nasdaq stormed to a 1.75% gain, while the value-centric Dow Jones closed 0.42% lower. In Asia, US futures are steady, with the S&P 500 and Dow almost unchanged, while the Nasdaq futures have booked a 0.28% gain.

Asian markets are mostly having a bad day at the office as they race to price in both a US recession overnight and also the potential for wider virus restrictions in China following overnight developments. The prospect of more covid zero restrictions in China is an unwelcome dose of reality for Asia and is certainly carrying more weight, although Asian currency weakness is also in play.

Japan’s Nikkei 225 is 1.20% lower, with South Korea’s Kospi dropping by 1.10%. In Mainland China, the Shanghai Composite has slumped by 1.25%, with the CSI 300 close behind, falling by 1.10%. In Hong Kong, the Hang Seng has lost 1.40%.

Across regional Asia, on Manila is defying the odds once again, jumping by 1.40% this morning. Elsewhere, it is a sea of red. Singapore is relatively steady, down just 0.05%, while Kuala Lumpur is 0.50% lower, Jakarta has lost 1.05%, Taipei has slumped by 1.75%, and Bangkok has eased by 0.20%. Australian markets have been spared the worst of the selloff, despite resource prices tumbling overnight, thanks to its Wall Street correlation of late. The ASX 200 and All Ordinaries are down by 0.30%.

European equities had a terrible day yesterday thanks to natural gas supply fears and political instability in the UK’s case as well. With the Norwegian government stepping in to impose a settlement between the striking oil workers and employers, European markets may gain a temporary reprieve this afternoon.

US Dollar soars on haven demand.

The US Dollar soared versus both developed and emerging market currencies overnight, as recession fears saw a spike in haven demand for US Dollars. Quite a bit of that looks to have been recycled into US bond markets as well, adding to the recessionary downward pressure on yields. The dollar index leapt 1.26% to 106.49, a two0decade high. It remains there in Asia and the next technical target is the 109.00 area. Having broken out of a 5-year triangle at 102.50 in April, its longer-term target remains in the 1.1700 area. Support is at 1.0585, the overnight breakout point, and then 1.0500, followed by 1.0350 and 102.50. ​

The Norwegian oil strike deepened recession fears and broke Euro yesterday, EUR/USD plummeting 1.51% to 1.0265, a multiyear low. In Asia, it has eased another 0.10% to 1.0253. The overnight low at 1.0235 is initial support, followed by 1.0130 ahead of 1.0000. As I have said before, any deeper interruption of Europe’s natural gas supplies will mean a move below parity and a European recession. Since breaking a multi-year support line at 1.0850 in April, Euro has never looked back. Although risks are skewed to the downside now, the Norwegian strike settlement may allow EUR/USD to find some friends this afternoon. It has resistance at 1.0300, and then the 1.0350 breakout, followed by 1.0600.

GBP/USD fell by 1.18% to 1.1960 overnight, easing to 1.1945 in Asia. Recession fears are also complicated by political instability in London now following multiple ministers resigning overnight, with eh Bank of England also sounding a loud economic warning as well. That makes constructing a bullish case for Sterling challenging and a move back towards the March 2020 lows near 1.1400 can’t be discounted. It has immediate support at the overnight low at 1.1900, followed by 1.1800. Resistance is at 1.2000 and 1.2200.

USD/JPY, rather surprisingly, finished almost unchanged at 135.86 overnight but has immediately moved 0.30% lower to 135.45 in Asia today. With the US/Japan rate differential narrowing sharply, long USD/JPY becomes more dangerous by the day and the risks increase of an ugly correction lower to wash out the speculative longs. If US yields find a floor, USD/JPY may cling to its gains for now though. USD/JPY has resistance at 136.65 and 138.00, with support at 134.25 and 132.00.

AUD/USD and NZD/USD have also fallen sharply overnight to 0.6800 and 0.6160, where they remain in Asia. The overnight fall in resource prices will be an additional headwind for the Australian Dollar in particular, but both remain at the mercy of international investors who use them to express risk sentiment. AUD/USD is in danger of testing 0.6700 this week, and NZD/USD 0.6000. Failure will signal a deeper move lower is in progress.

Asian currencies retreated overnight, led by USD/KRW, which gained 1.0% to $1308.00, and USD/PHP, USD/INR, and USD/IDR, which all rose around 0.50%. A weaker Chinese Yuan fixing by the PBOC today has kept the pressure up on Asian currencies, as has fears of more China lockdowns. Notably, USD/IDR has breached 15,000.00 this morning and rates hikes from Seoul, Jakarta, Manila, and New Delhi are now a certainty. The price action overnight and this morning does suggest that Asian central banks are around selling US Dollars, but with Asian currencies gaining no solace from lower US yields, this looks very much like a risk aversion move that will keep the pressure up on local currencies. Bank Negara should hike by 0.25% this afternoon, but if they don’t, look for extended MYR weakness.

Oil plummets overnight on recession fears.

Recession fears saw oil markets plummet overnight, with both Brent crude and WTI taking out their 2022 rising support lines in no uncertain terms. Brent crude slumped by 7.90% to $104.75, having tested $101.00 a barrel intraday. WTI slumped by 8.75% to 100.90, trading as low as $97.50 a barrel intraday. In Asia, both contracts remain under pressure as China lockdown nerves sweep the region. Brent crude has fallen 0.90% to $103.85 a barrel, and WTI is 0.60% lower at $100.00 a barrel.

The price action overnight, with both contracts trading in near fifteen dollar ranges, hints more at panic and forced liquidation, than a structural change in the tight supply/demand situation globally. Although I acknowledge recession risks in the US, and covid zero ones in China, the world’s two largest consumers, the futures markets in both Brent crude and WTI remain in heavy backwardation. That says that in the physical market, supplies remained as constrained as ever, and despite the noise seen overnight, oil prices may be in danger of overshooting to the downside.

Having said that, the failure of the 2022 support lines on both contracts so comprehensively must be respected, as are looming recession risks around the world. But with Russian oil supplies set to drop as the year progresses and it runs out of Western parts to maintain fields, and with the rest of OPEC hopelessly uninvested in maintaining production capacity, I fear the days of $100 oil will be with us for some time yet. That said, Brent crude and WTI are likely moving into a new $95.00 to $110.00 barrel range.

Brent crude has resistance at its 2022 trendline at $108.85 a barrel, followed by the 100-day moving average (DMA) at 110.30. Support is at $101.00, $100.00, and then $96.25 a barrel, it’s 200-DMA. WTI has resistance at its 100-DMA at $106.95, followed by the 2022 trendline at $108.50 a barrel. Support is at $99.60, $97.50, and then its 200-DMA at $93.40 a barrel.

Gold capitulates.

The massive strength of the US Dollar across asset classes overnight was more than gold could withstand, despite lower US yields. It wilted in the face of US Dollar strength and finished the overnight session 2.40% lower at $1765.00 an ounce. In Asia, it has eked out a tiny gain to $1767.40 an ounce.

With gold moving inversely to the US Dollar and no other inputs driving the price, gold’s only salvation from here is entirely reliant on a sudden reversal of course by the greenback. Having finally broken out lower from its multi-month $1780.00 to $1880.00 range, the failure of $1780.00 is an important technical development. Assuming the Dollar rally continues, the technical picture suggests a move lower to $1720.00 an ounce in the days ahead.

Gold has resistance at $1780.00, $1785.00, and $1820.00, its downward trendline. Support is at $1764.00 and then $1720.00, followed by $1675.00. Failure of the latter sets in motion a much deeper correction, potentially reaching $1500.00 an ounce.

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Knot-Tying Masterclass Continues

One of the more pleasing aspects of being aboard a slow boat into the rainforests of Borneo these past few days was the complete loss of mobile telephony signals.

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

One of the more pleasing aspects of being aboard a slow boat into the rainforests of Borneo these past few days was the complete loss of mobile telephony signals. The temptation to look at emails, chats, social media, or news from the markets was compulsorily removed, thanks to the national park being bigger than all of Bali. Phones (sorry; devices) become mere cameras to capture orangutans and others, or scenery for posterity. Experiences are experienced instead of captured for the “Gram, books are read, conversations are had. I could have done without the leeches and insect bites, but that’s all part of nature’s plan, and if I’m honest, in my long career in the great game we call the financial markets, I’ve noticed they attract plenty of leeches and biting insects of their own.

I certainly haven’t missed much in my short absence. Yes, volatility remains elevated across every asset class to be sure, although a US holiday overnight meant a 12-hour break from the noise. (New Yorkers don’t do 8-hour days, lunch is for wimps) What is clear is that the strategy of watching the rooster fight from the sidelines instead of getting involved remains the sensible one. The financial markets continue to tie themselves in knots so complicated, that they would give even the saltiest mariner a headache, as they try to price in a recession no recession and its impact on asset prices. Nobody is saying it, but really, it is a cover for looking for an excuse to pick the low in the stock market, which is struggling still to cope with the transition back to the real world after being back-stopped by the world’s central bank for the past 20 years.

Other asset classes are trying to price in a recession as well. US 10-year yields are now back to near 3.0% and I must say I got this one completely wrong, I thought it would be nearing 4.0% by now. That said, the US yield curve from 2-year to 30-year continues to flatten dramatically, with only a 24 bps difference as of Friday. We seem to be on the way to an inversion sooner than later, signalling a recession. Not much of a reason to bottom-fish equities I’d have thought.

Oil fell by over 5.0% on Friday for much the same reason, but frankly, with Russian sanctions and OPEC’s production targets merely a fantasy on paper, we’re going to have to see things get a lot worse in the world economy to see Brent crude under $100 a barrel. That ties in nicely with my outlook that inflation may be nearing a peak, but the risk is that it stays elevated for longer than the market is pricing, even if it peaks in the US. Don’t consign stagflation to the cupboard just yet. Elsewhere inflation in the world is still on its way up, as evidenced by European data last week and yesterday’s Indonesian inflation numbers.

The crypto space is also in the Accident and Emergency department still, waiting to be seen by a doctor. Bitcoin flirted with $18,000.00 while I was away but held the crucial $17,500.00 region. The dead cat bounce to $20,000.00 isn’t inspiring confidence with another crypto lender halting withdrawals, deposits, and trading on its platform yesterday. This one, I believe, was conjuring up to 40% potential returns through the magic of Defi. Cryptos have proven to be neither a hedge for deflation, stagflation, or inflation, even gold has done a better job and that’s saying something. Nor have they usurped the US Dollar or other fiat currencies. All I can say about the crypto space is a saying I heard before the global financial crisis and used a lot during it when a bank CEO would proclaim “we have plenty of capital.” That is “there is never just one cockroach.”

Perhaps the biggest surprise is that despite US yields tanking last week on recession fears, USD/JPY remains near 136.00. That is becoming a dangerous trade in my opinion, especially if US 10 years fall below 3.0%. Still, the US Dollar remains firm across the board, with the modest recovery in risk sentiment recently not translating into material strength in Asia currencies or major currencies versus the greenback. In fact, looking at the likes of the Euro, Yen, Aussie or Won, you might argue the opposite. The price action in the currency markets is perhaps a less-than-subtle warning to temper those bullish animal spirits in other asset classes.

That said, it looks like the bottom-fishers of the equity, bond and crypto-space may hold the reins in the first past of the week. US Treasury Yellen and China Vice-Premier Liu have held a construction phone call this morning and the market is alive with speculation that US President Biden will cut tariffs on a swath of Chinese goods this week to lower inflation. ​ Following on from an impressive recovery by US manufacturing PMIs last week, China’s Caixin Services PMI leapt massively to 54.5 this morning for June, a giant recovery from May’s 41.4.

Japan’s Jibun Bank Services PMI for June also rose to 54.0 from 52.3 in May. Both China and Japan are emerging from varying degrees of virus restrictions, but the strength of the China’s PMI recovery is a surprise. Whether it can last is another matter and once again I’ll focus on China once again and beat the drum of warning. China’s covid-zero policy is NOT one and done and President Xi said as much last week. Already, a flare-up of virus cases elsewhere has led to some restrictions being reimposed. Readers should be under no illusion that flare-ups in Beijing and Shanghai will not lead to a reimposition of movement restrictions. Tread carefully on bottom-fishing in China asset markets. And I have even mentioned the still ongoing implosion in the private property developer sector there.

Elsewhere in Asia, inflation warning signs continue to make some noise. Having started the post-covid recovery later than the United States and Europe, Asia is starting to see the inflation pass-through happening. South Korean Inflation YoY for June rose to 6.0% today from 5.40% in May, you can lock and load a Bank of Korea rate hike at the next meeting, it’s just by how much. Philippine Inflation YoY for June has risen to 6.10% from 5.90% in May as well. On Friday, Indonesian inflation jumped to 4.40%, led by food inflation. An ominous development for a country of 270 million, mostly poor, citizens. Although core inflation remained benign, two of the most reluctant rate hikers, the Philippines and Indonesia, are going to be forced to act, or see pressure mounting on their currencies, causing a negative feedback loop of involuntary tightening via a lower currency. Likewise, India may need to accelerate hikes as well as soaring energy prices torpedoed the current account yesterday, which slumped to $-25.64 billion. And that’s with cheap Russian oil. This might partially explain why lower US yields are producing no peace dividend for Asian currencies against the US Dollar.

Another central bank facing the music in a couple of hours is the Reserve Bank of Australia. Home Loan and Building Permits soared yesterday, as did ANZ Job Advertisements. S&P Global Services PMI for June edged only slightly lower to 52.6, with the Composite PMI also printing at 52.6 from 52.9 last month. The lucky country remains far too lucky it seems, and despite a 50bps hike last month, the battlers aren’t going down without a fight. Another 50bps is priced in for the RBA today, and if they stay on the fence and do just 25bps, the Australian Dollar is going to have a very bad day. It will probably only book modest gains anyway with 50bps unless the RBA statement is very hawkish. There is an outside chance the RBA could look at the data and go 75bps and surprise markets, I’m not betting my remaining hair on it though.

Although I said the stock market bulls may have the momentum in the first half of the week, the first challenge to that will loom in the dark hours of tomorrow evening Singapore time. Wednesday sees the release of May JOLTs Job-Opening data, expected to still be just above 11.0 million jobs. JOLTs Job Quits should come in around 4.4 million. That is hardly consistent with a US economy on the verge of a recession although some may argue that May is now history. Junes ISM Non-Manufacturing PMI, Activity, Employment, New Orders and Non-Manufacturing sub-indexes might take the heat out of a high JOLTs number unless they surprise to the upside.

Later that evening, the FOMC Minutes are due to be released, although I would be surprised if the committee is blinking on its inflation fight yet. That would create an intolerable credibility gap that already has a few holes below the waterline after the past 12 months. Before we know it, Friday is here and another US Non-Farm Payrolls release for June. Time flies when you’re getting whipsawed every day. Jobs are expected to fall from last month’s monster 390,000 print to a still-healthy 270,000. Maybe there is some risk of downward back-month revisions, but that forecast is still not consistent with a US economy on the verge of a big slump. The scope for bond market volatility is high is “peak-Fed” has to be revised higher again. The US Dollar will lap it up like a cat with a plate of high-fat milk, but equity markets are unlikely to feel the same love.

It looks like another week to be patient and observe from the sidelines. Otherwise, strap in everybody, and keep practising those complicating sailing knots, they will be used this week.

Asian equities China tariff rally fades.

US OTC equity markets were closed overnight for the July 4th holiday, but US futures posted consistent gains as markets pinned their hopes on a reduction of US tariffs on Chinese goods this week. S&P 500 futures are 0.40% higher, Nasdaq futures have rallied by 0.85%, and Dow futures have gained 0.55%.

That theme saw Asian markets open higher this morning, but that rally seems to have faded as the session marched on. Concerns around the latest China virus flare-up and the prospect of restrictions seem to be weighing on Asian markets and rightly so. Lower tariffed goods to the US will mean little if supply chain disruptions from China occur again. That has led to a mixed day across Asia.

Japan’s Nikkei 225 is 0.55% higher today, well of the intraday highs, while South Korea’s Kospi has rallied by 1.20%. Mainland China has moved into the red, the Shanghai Composite falling by 0.25%, with the CSI 300 falling by 0.60% despite an impressive recovery by the Caixin Services PMI data. Hong Kong’s Hang Seng has now fallen into negative territory, down by 0.05%.

Singapore is 0.30% lower, with Taipei easing by 0.25%, Kuala Lumpur clinging to a 0.05% gain, while Jakarta is outperforming, rising by 0.90%. Manila has also surprised, rallying by 1.20%, with Bangkok adding 0.25%. Australia is clinging onto some of its earlier gains ahead of the RBA policy decision, with 0.50% priced in. Still, its high beta to China means it is well off earlier highs in the day. The ASX 200 and All Ordinaries are 0.30% higher.

Europe had a mixed session overnight, and with a US holiday and a slow news day, there will be little to inspire a strong direction move this afternoon. I expect a neutral opening. With US futures gaining during the US holiday, and China tariff cuts expected this week, I expect US markets to focus their efforts on this direction and open higher tonight, potentially lifting European markets later in the day.

US Dollar remains firm.

A US holiday overnight torpedoed volatility in currency markets, but overall, the US Dollar continues to maintain its gains versus the DM and EM currency space, despite insipient bullish sentiment in other asset classes and falling US yields. It seems that while markets tie themselves in knots in other asset classes, the US Dollar remains the favoured seats to watch the fun and games from in the stadium. The dollar index was almost unchanged at 1.0516 overnight, where it remains in Asia. ​ Support remains at 1.0350 and 102.50. ​ With resistance at 105.00 now eroded, the index’s next resistance is at 1.0585.

EUR/USD is steady at 1.0430 in Asia. Resistance is well and truly in place at 1.0600, followed by 1.0650. It remains uncomfortably close to the critical 1.0350 support region. Failure signals further losses to 1.0200 initially and potentially to parity in the weeks ahead.

Sterling has edged 0.10% higher to 1.2110 in Asia. A probe of the 1.2200 upside came to nought overnight and it remains initial resistance, followed by 1.2300. Support at 1.2080 and then Friday’s low at 1.1975. More important support at 1.1950 held and failure now signals a test of the 1.1400 pandemic low.

USD/JPY climbed by 0.35% to 135.70 overnight, adding another 0.35% to 136.20 in Asia. The resilience of USD/JPY continues to surprise, given the moves lower by US yields. Perhaps markets are pricing in an imminent inversion of the US yield curve and sharply higher short-term rates, but the excessive bullishness of USD/JPY is, in my opinion, becoming a dangerous trade if the US/Japan yield differential narrows. Perhaps US data this week will show a healthier US economy and put inflation-fighting back on track, perhaps not. Additionally, far too many “experts” are now calling for 140+, always a dangerous sign in my books. USD/JPY has resistance at 136.65 and 138.00, and support at 134.25 and 132.00.

Asian currencies are steady today, with a US holiday overnight giving Asian currency markets a reason to sit this session out. The US Dollar is maintaining its gains across the Asian FX space, with USD/PHP now at 55.000, while USD/IDR is approaching 15,000, and USD/KRW trading on each side of 1300.00. The India trade data did the INR no favours and USD/INR remains near record highs at 78.930 this morning. The Chinese Yuan remains a paragon of managed currency stability, thanks to components in its index slumping. USD/CNY is at 6.6935 today, comfortably in the middle of its two-month 6.6400 to 6.8100 range. If US data and/or the FOMC minutes, come in on the firmer side this week, receding recession fears and higher rate expectations will leave Asian FX vulnerable to another bout of downside pressure.

Oil is steady in Asia.

Oil price continued their recovery from Thursday’s recession-fear sell-off as the supply-demand balance in the real world continues to underpin prices in the futures market. Brent crude rose by 2.15% overnight, easing 0.35% to $113.40 a barrel in subdued Asian trading. WTI rose by 1.90% to $100.55 overnight, easing by 0.30% to $110.10 a barrel in Asia.

Notably, Brent crudes retreat last week saw its ascending 2022 trendline support at $108.50 a barrel tested and held in textbook fashion. The support line is at $109.00 today and we can reasonably assume that Brent crude’s downside is limited unless we get a couple of daily closes below it. That would open a deeper test lower, potentially extending to $100.00. On the topside, the $120.00 region looks unlikely to break thanks to global recession nerves, unless we get more negative developments related to Russia.

WTI looks the more vulnerable of the two, as recession nerves rachet up in the United States. Again, US data this week has upside risks in this respect. WTI is ranging each side of its 2022 ascending trendline support, today at $108.50 a barrel. A close below the 100-day moving average at $106.95 likely signals a test of $104.00 and potentially $100.00 a barrel. Resistance lies at $112.00 and $114.00 a barrel for now.

Gold underwhelms again.

Gold fell to $1784.00 an ounce last Thursday in what looked like a series of stop-losses going through the market after $1800.00 failed. It immediately recouped those losses and has been trading sideways around $1810.00 an ounce since then. Gold has risen slightly to $1811.00 in Asian trading today.

Overall, gold bugs will have taken a modicum of comfort that the fall below $1800.00 an ounce was short-lived, but the ensuing rally is uninspiring, to say the least. It suggests that any further US Dollar strength this week could see the downside tested once again as it refuses to react positively to the flattening and move lower by the US yield curve. The series of lower daily highs traced out over the last month continue to warn of the path of least resistance for gold.

Gold has resistance layered at $1820.00, its sloping downtrend line, then $1840.00, $1860.00, and $1880.00, the latter appearing an insurmountable obstacle. Support is at $1784.00 and then $1780.00 an ounce. Failure of the latter sets in motion a much deeper correction, potentially reaching $1700.00 an ounce.

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