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Is The U.S. Army About To Save The World?



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

An interesting story is making the rounds this morning, suggesting that researchers at the Walter Reed Army Institute of Research have made substantive progress in developing a compound that protects against multiple coronaviruses, including Covid-19. The link to the story is here.

and here

with more detail on the preliminary results here

I have deliberately avoided being an armchair virologist or epidemiologist but having been asked non-stop this week from the world’s media as to whether we will have a “Santa Claus” equity rally this year, this seems to be as good a reason to e less Grinch, and more Santa, as any. Bloomberg ran a story into this line of research recently, including the work of Walter Reed, but this seems to be an evolution of that. Nor have I heard of who have released the story. I would be remiss in not letting readers know about this potential, in my mind, major development in the quest for a one ring to rule them all vaccine. You should, of course, do your own research as to the veracity of the story and the news organisation running it.

If the above story does have legs, the positive momentum seen in US markets overnight could pick up steam substantially. Overnight, the fast-money headline-chasing FOMO gnomes of Wall Street were hard at work as the omicron headline ticker went quiet (relatively), and President Biden made soothing noises about boosters and a potential rerun at the build back better in January. US bond yields rose as hot money moved out of defensive foxholes, US equities powered higher along with oil, but the US Dollar continued holding steady.

The buy-the-dip strategy remains irresistible to most and I fully acknowledge that it has had a higher efficacy than any vaccine over the last 18 months. However, with pre-holiday liquidity tumbling, and market direction entirely dominated by headline derived volatility, it is probably not wise to get too wedded to “the worst is over just yet. I’ll say is again, volatility is the winner in December, not thematic direction. Catching that dip could easily be a falling knife instead.

Asian markets are taking a much more cautious approach to the schizophrenic fast-money histrionics in New York overnight. It appears that the holiday season and book closing has well and truly arrived here judging by the vol I am seeing this morning. In the same vein, the data calendar is equally as empty in the region today, with only Malaysian Inflation of note. Final reads on UK and US Q3 GDP come out this evening, but the words “Q3” and “final” make them old news.

More interesting will be official US weekly Crude Inventories, with a low print potentially extending oil’s comeback. Notably and ominously, natural gas prices hit record highs in Europe overnight as Russian gas stopped flowing through a major pipeline. Ironically, the US has natural gas coming out of its ears, with prices languishing. Europe may yet pay the price for its strategic ineptitude in Q1 if the winter turns brutal, and that’s without omicron.

With that, I am back to watching the news ticker for clues on market direction, along with a continuing search to secure Brussel sprouts here in Jakarta, as strategic a challenge as any facing the international community.

Asian equities don’t buy the US hype.

US markets were on fire overnight as a slowdown in omicron headlines irresistibly led the fast-money herd into a buy-the-dip frenzy. With pre-holiday season liquidity heightening ranges, US markets soared with the S&P 500 jumping by 1.78%. That was overshadowed by the Nasdaq, which soared 2.40% higher, as the Dow Jones gained an impressive 1.59%. The first sign that this rally is built on eggshells is coming from US futures today though. The S&P 500 and Dow Jones futures have eased by 0.10%, while Nasdaq futures have already given back 0.35%.

With no follow-through on US index futures, Asian markets have rightly adopted a wait-and-see cautious approach today, perhaps tired of the relentless whip-saw price action emanating from New York. Asian markets are mostly higher, but only very moderately so. Even the Nasdaq directional slaves of Tokyo are taking a break today, the Nikkei 225 rising just 0.10%. The South Korean Kospi climbing just 0.15%.

In Mainland China, activity is similarly quiet, the Shanghai Composite is unchanged, while the CSI 300 is just 0.10% higher. Hong Kong has put on a better show, rising by 0.60% thus far.

Singapore has just announced a dialling back of its vaccinated travel lane policies due to omicron, and I have a feeling we will see more in the days ahead. That is likely to weigh on sentiment with the STI now up just 0.10%. By contrast, Kuala Lumpur has risen by 0.40%, thanks to oil’s rally overnight, while Taipei is 0.20% higher. Jakarta has gained 0.25% with Bangkok rising 0.45% and Manila unchanged. Australian markets are in Christmas mode, the All Ordinaries edging 0.20% higher, with the ASX 200 up just 0.10%.

The price action in Asia suggests that European and UK markets are unlikely to follow New York’s lead with the UK Prime Minister apparently due to announce a decision on a post-Christmas circuit breaker decision in the next 48 hours. Surging energy prices in Europe, as well as the evolution of omicron across the Eurozone, will weigh limit gains on the continent.

US Dollar holds steady.

The US Dollar held steady via the dollar index overnight, although the surge in positive sentiment in equity markets saw gains in the Canadian, Australian and New Zealand Dollar risk barometers. The dollar index held steady at 96.48 and I continue waiting for a break or either 96.00 or 97.00 to signal the US Dollars next directional move.

EUR/USD remains steady at 1.1270 today with risks still skewed lower thanks to omicron and energy prices. Failure of 1.1200 signalling a test of 1.1000. Sterling has risen by 0.45% to 1.3250 as the UK PM ruled out pre-Christmas restrictions overnight. USD/JPY has edged higher to 114.10 as US bond yields rose overnight.

The three risk-sentiment amigos, the CAD, AUD, and NZD all staged modest rallies overnight, but still remain near 2021 lows. The omicron flavour of the day will continue to dictate directional moves through the holiday period.

Asian currencies are steady as USD/CNY remains near-unchanged at 6.3725. The firm Chinese Yuan and diminishing holiday season liquidity are dampening activity in the regional Asia FX space, and I expect range trading to dominate over the rest of the week.

Another wild day for oil.

The headless chickens populating oil markets had another day in the sun overnight, sending oil prices rocketing higher after a lower US API Crude Inventory figure, and riding the wave of diminishing virus caution as the news tickers stayed relatively quiet. Tonight’s official US Crude Inventories are expected to fall by 2.5 million barrels. Assuming omicron stays away from its Bad Santa role, a lower number could be the excuse needed in the chicken run to propel prices higher once again.

OPEC+, of course, continues to lurk in the background, and their free option on quickly reigning in production to support prices from the last meeting open should continue to be a warning to overenthusiastic bears. If Brent crude heads towards $65.00 a barrel, I wouldn’t discount OPEC+ stepping in. Given that compliance is over 100%, this would process would be easy to achieve.

Brent crude rose by 2.70% to $74.00 a barrel overnight, climbing slightly to $74.1o in Asia. Brent crude has resistance at $74.40 and then $76.00 a barrel, with support is at $73.25, the 200-DMA. WTI rocketed 3.0% higher to $71.25 a barrel overnight, adding 10 cents to $71.35 in Asia. It has resistance at $73.00 a barrel, with support at $70.55, its 200-DMA. Trading in Asia is reflecting the same cautious approach seen in Asian equity markets today. Headless chickens can run in any direction randomly.

Gold is sleepless in Singapore.

Gold probed $1800.00 an ounce overnight but quickly retreated as US yields rose, finishing almost unchanged at $1789.00 an ounce. Asian trading is moribund, gold edging slightly lower to $1788.50 an ounce as regional markets move into holiday mode.

Gold’s attempts to stage a meaningful recovery continue to disappoint, with traders cutting long positions at the very first sign of trouble intra-day. Gold lacks the momentum, one way or another, to sustain a directional move up or down. Likely, gold will remain a forgotten asset class and face another week of choppy range trading.

Gold has formed a rough double top around the $1815.00 region which will present a formidable barrier t$1840.00. Support lies at $1790.00, followed by $1780.00 an ounce. $1790.00 to $1815.00 could well be the range for the week.

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Markets Today – Earnings, Nasdaq, ECB, CBRT, Oil, Gold, Bitcoin



New York Stock Exchange

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

It’s turned into a mixed session across Europe with indices giving up earlier gains initially before reversing course once more to tread water as we near the open on Wall Street.

It appeared we could have been heading for a second consecutive positive session when Europe got things underway this morning, something we haven’t been treated to much so far this year. But it wasn’t long until we were back in the red; a further sign of the angst in the markets right now that is proving hard to shake off. Perhaps there’s still hope yet but given what we’ve seen, it won’t be cause for optimism.

The Nasdaq dropping into correction territory won’t be helping lift the mood, and that will turn more downbeat again if it breaks below the 200-day simple moving average for the first time since April 2020 when the unbelievable tech rally started. It would also take it below 15,000 for the first time since the middle of October. Not a great signal for the markets just as Netflix kicks off earnings season for big tech.

The flipside of that is that earnings could be what helps tech find some form again. There’ll no doubt be some interest around these levels and we’re already seeing futures pointing more than half a percentage point higher ahead of the open. A strong report from Netflix could see dip buyers flood back in.

The key question on investors’ minds though will be whether the tech rout is already behind us after a 10% drop. That will depend on more than just a few stellar earnings reports. The key thing will be whether we see a pause in market interest rate expectations after weeks of aggressively pricing in more hikes and balance sheet reduction.

While there are calls for more than four hikes this year, even a kickstart 50 basis point increase from the Fed in March for the first time in more than 20 years, is that going to be priced in this early? Or could we see a period of relief that could benefit stock markets if earnings season takes a turn for the better? We’ll soon see as big tech dominates the next week on the earnings calendar.

ECB remains in camp transitory

Christine Lagarde launched a strong defence of the ECB’s response to higher inflation on Thursday, warning that markets should not expect a similar approach to that taken by the Fed as the situation doesn’t warrant it. Lagarde pointed to lower inflation, which was confirmed today at 5% in December, and a weaker recovery. While that may be true, markets have been pricing in the possibility of a similar u-turn to that we’ve seen in the US and UK, with a 10 basis point increase expected in October.

The minutes reflected Lagarde’s comments, as we would expect, but that’s unlikely to change investors’ minds. Central banks have repeatedly pushed back against market expectations over the last six months before eventually aligning with them. With the German 10-year moving into positive territory for the first time since mid-2019 on Wednesday, it seems a familiar pattern may be unfolding.

New year, new CBRT?

The CBRT appears to be turning over a new leaf in 2022 after resisting the urge to cut interest rates for a fifth consecutive meeting. The central bank has cut rates from 19% to 14% in that time which has come at great expense in terms of the currency, reserves, and inflation. But it would appear that the easing cycle has run its course, for now.

That said, the explanation for current levels of high inflation and the disregard for it, and in effect its impact on households and businesses, don’t offer much assurance that the CBRT won’t at some point revert back to the damaging approach of recent months. But it may wait until inflation does ease again after reaching 36% last month.

Oil rally finally losing momentum

Oil has been on a remarkable run in recent weeks driven by very bullish fundamentals as disrupted supply struggled to keep up with strong demand. OPEC and the IEA have referenced the resilience of demand since the emergence of omicron in recent weeks and the inability of OPEC+ to hit their production targets, or even come close, has led to the kind of one way price action we’ve been witnessing.

While the fundamentals haven’t changed, it does appear that we’re finally starting to see momentum wane after a more than 30% rally from the omicron lows. That’s coming around $90 where oil has peaked at a seven-year high, seemingly triggering some profit-taking. While I don’t think it’s done there, we could see a minor correction to take some of the frothiness out of the market. That said, I can’t imagine it will be too large unless we see a shift, either in OPEC+ production or slowing demand from a major consumer like China as a result of its zero-Covid policy.

Gold breaks key resistance

Gold has been pushing for a breakout above $1,833 since the start of the year and it finally achieved it on Wednesday, which could potentially help propel it higher in the coming weeks. The move has been building despite yields rising, which may be a sign that traders don’t believe enough is being priced in to counter soaring inflation.

The yellow metal has recovered earlier losses to trade higher today, just as the dollar has lost earlier gains to trade flat. It started to struggle a little shy of $1,850 which may be the next area of resistance, with the November highs around $1,875 above here being the next test. A move lower will see $1,833 tested as support after putting up such a barrier of resistance in recent months.

A big move coming in bitcoin?

Bitcoin remains in consolidation on Thursday, with ranges tighening as the cryptocurrency struggles for any direction. It doesn’t feel like we’ll have to wait long for an aggressive breakout one way or another but at this point, it’s hard to say in which direction that will come. If interest rates are its kryptonite then it could still be in for a rough ride as anxiety around monetary tightening remains heightened. But I’m not convinced that will remain the case and it may just be a case of the cryptocurrency biding its time. I’m sure we’ll soon see which way that will come but once it breaks out of that tight range, the move could be quite substantial.

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Markets Today – Mild Reprieve, UK Inflation, BoE, Oil, Gold, Bitcoin




By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Equity markets are recovering some of yesterday’s losses but anxiety and uncertainty continue to dominate after a disappointing start to earnings season.

Inflation and interest rate concerns are going nowhere soon and with traders now increasingly considering the possibility of hikes larger than 25 basis points, the possibility of more pain in stock markets is very real.

The idea that we could go from rock bottom rates and enormous bond-buying to rapid tapering, 50 basis point hikes, and earlier balance sheet reduction is quite alarming. We’re talking about markets that have become very accustomed to extensive support from central banks and very gentle unwinding when appropriate. This is quite a shock to the system.

And so far earnings season is not providing investors the comfort they were hoping for. Significant compensation increases and lower trading revenues hurt JP Morgan and Goldman Sachs, and higher wage demands are likely to be a common theme throughout the next few weeks which will put a dampener on the bottom line and not alleviate concerns about persistent and widespread price pressures.

UK inflation jumps again ahead of Bailey appearance

The CPI data from the UK this morning compounded inflation concerns, hitting a 30-year high and once again surpassing expectations in the process. And it’s highly unlikely we’re seeing the peak, with that potentially coming around April when the cap on energy tariffs is lifted considerably to reflect higher wholesale prices. Other aspects will also contribute to higher levels of inflation at the start of the second quarter, at which point we may have a better idea of how fast it will then decline.

Of course, the Bank of England can’t just turn a blind eye until then. The MPC may be willing to overlook transitory inflationary pressures but the rise in CPI has proven to be neither temporary nor tolerable. Instead, it’s become more widespread and the central bank is being forced to act and may do so again next month after raising interest rates for the first time since the pandemic in December. A few more hikes after that are also priced in for this year but if pressures continue to mount, traders may begin to speculate about the possibility of larger hikes, as we’ve seen starting in the US.

All of this should make Andrew Bailey’s appearance before the Treasury Select Committee later today all the more interesting. The central bank has warned of higher inflation and possible interest rate hikes for months but delayed doing so after initial hints ahead of the November meeting. Given what’s happened since, the decision looks all the more strange. Of course, it’s easy to say that with 20/20 hindsight.

Oil gathering momentum as $100 oil looks increasingly likely

Oil prices are continuing to climb on Wednesday and find themselves only a little shy of $90 a barrel. This happened as IEA confirmed that the market looks tighter than previously anticipated as a result of stronger demand, despite omicron, and the inability of OPEC+ to hit its monthly increased production targets. This imbalance has led to surging prices which will further pressure households and businesses already fighting high inflation.

What’s more, not only does the rally not appear to be losing steam, it may have even generated fresh momentum. While $90 could have triggered some profit-taking and a minor cooling of prices, this suggests they’ll see no reprieve and we could realistically see $100 oil soon.

Can gold break higher as traders speculate about more rate hikes

Gold is marginally higher again after the easing over the course of the last week. The yellow metal is continuing to struggle around $1,833 which has been a surprisingly strong level of resistance over the last six months. But support is returning after it came close to $1,800 so a break to the upside remains a strong possibility.

Given the calls for even more rate hikes this year than markets are pricing in, not to mention larger individual increases than we’ve seen for many years, perhaps we are seeing some inflation hedging from traders that don’t think central banks are doing enough to bring price pressures down.

Consolidation continues

Bitcoin appears to have gotten lost in the noise of the last few weeks. It’s not falling too hard despite risk assets getting pummelled but it’s not recovering to any great extent either. Instead, it’s floating between support at $40,000 and resistance around $45,000 and showing no signs of breaking either at this point.

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Markets Today – Cautiously Higher, China, Oil, Gold, Bitcoin



By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

European stock markets moved cautiously higher on Monday as investors were tempted back in after a turbulent start to the year.

It’s been a relatively quiet start to the week, with the US bank holiday naturally weighing on activity. With that in mind, I don’t think we can read too much into today’s advances, especially as they’re occurring alongside rising yields which doesn’t seem particularly sustainable at a time of such anxiety in the markets.

It will be interesting to see if investors are tempted back in now that earnings season is underway. The emergence of omicron may mean that many companies don’t enjoy the kind of performance that was expected before but that doesn’t mean there won’t be plenty of positives to take away.

Of course, there are areas that will naturally chip away at that enthusiasm. Whether that’s margins being squeezed, prices increased or staffing costs, for example, there’ll be plenty for investors to get their heads around as they contend with sky-high valuations and a tricky economy this year.

PBOC cuts rates despite strong growth in 2021

A mixed bag of data overnight from China, where GDP growth exceeded expectations but retail sales fell short and the unemployment rate ticked higher. While the economy is still performing well after far exceeding its growth targets for 2021, many challenges remain, not least the crackdown on the property market that has led to firms defaulting on coupon payments and being forced into negotiations with bondholders.

This explains the PBOC decision overnight to cut interest rates and further easing is expected to follow as the central bank looks to support the economy through a turbulent period.

Oil rally continues as output continues to fall short

Oil prices are edging higher again at the start of the week as it continues its remarkable run since bottoming in early December. It’s up more than 30% over that time and there still appears to be momentum in the move. Kazakhstan has seen its output return to pre-unrest levels but that’s done little to slow the rally in recent sessions.

Ultimately it comes down to the ability of OPEC+ to deliver the 400,000 barrel per day increase that it’s vowed to do each month. The evidence suggests it’s not that straightforward and the group is missing the targets by a large margin after a period of underinvestment and outages. That should continue to be supportive for oil and increase talk of triple-figure prices.

Can gold break key resistance?

Gold is marginally higher on the day after pulling back again late last week. The yellow metal has repeatedly struggled at $1,833 and it would appear it’s having the same struggles this time around as well. It did finally break through here in November but it didn’t last and it seems the psychological barrier is as firm as ever.

That said, it’s impossible to ignore gold at the moment as it continues to rally despite more and more rate hikes being priced in around the world and yields rising in tandem. There could be an argument that we’re seeing safe haven or inflation hedge moves due to the current environment which could become more clear over the coming weeks.

Another run at $40,000?

Bitcoin is down a little over 2% at the start of the week and continues to look vulnerable having failed to bounce back strongly off the recent lows. It appeared to be gathering some upside momentum at times last week but it quickly ran into resistance just shy of $45,000 where it had previously seen support. All eyes are now on $40,000 and whether we’re going to see another run at that major support level.

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