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Sitting On A Beach Earning 20%



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

With Christmas upon us, I was pondering how the world has changed and what better place to start than the first Die Hard movie, a Christmas favourite now, and Alan Rickman’s attempted thief of US bearer bonds. As the lead bad guy in the film, Mr Rickman gleefully extols that by the time the authorities know he and his gang have stolen the bearer bonds, “we’ll be on a beach, earning 20%.”

That was 1988; in 2021 it just wouldn’t ring as true. “By the time they find out, we’ll be on a beach, earning errrrr 1.50%. Or if had stolen bunds, it would be “by the time they find out, we’ll be on a beach earning err…-0.50%. Hang on, it’s not worth getting shot by John McCain for -0.50%, grab some of the Greek 10-years as well. What? 0.70%!? Crime doesn’t pay anymore. Ok chaps, Plan B. Call that crypto broker back in Belize, lets circle back to those password locked JPG’s they call NFT’s, find me that investment banker’s number who was flogging SPACs, buy me some technology stocks and let’s reactivate that Reddit account, there’s plenty of suckers in there we can rob without getting shot.”

Mr Rickman’s quandary nicely encapsulates 2020 and 2021 when one thinks about it. Die Hard in its original form could never be made in 2021. Nevertheless, the bottomless amounts of zero per cent money from the world’s central banks continue to pump up asset prices everywhere, economic equality-be-damned. That situation is about to change though, with the Federal Reserve beginning the monetary normalisation path in 2022.

Markets continue to dismiss omicron because that’s what they want to believe, and the US data dump overnight had strong showings from the PCE Index, Durable Goods and Michigan Consumer Sentiment. Assuming omicron is a storm in a test tube, and I certainly hope it is, there was nothing to deter the Fed overnight. The omicron-is-mild rally could well continue into January now, but reality will bite in February I believe, as the end of the Fed taper moves into sight.

Don’t discount omicron though, much of the developing world, including the author, were vaccinated with Sinovac which doesn’t appear to work against the new variant. We can also take off our western-centric blinkers and note that China is in the same situation, it will remain shut for all of 2022 now. And while rich countries continue with their vaccine and pill lolly scramble, the majority of the world will still provide fertile ground for more variants to emerge.

Still, assuming we move through omicron and Vladimir Putin decides to spend his winter holidays in Russia and not “overseas,” policy normalisation by the Fed will the theme of 2022. Perversely, China may assist this process as their Covid-zero policy keeps the border shut and the Renminbi strong as their giant trade surplus gets recycled into local currency. China will become an exporter of inflation instead of deflation going forward, another uncomfortable reality for consumers globally, but another reason for the Fed, and perhaps others, to hitch their wagons to fighting inflation and teaching the world once again, that the natural cost of capital is not zero per cent.

2022 may yet make crime pay for Alan Rickman as his bearer bond yields improve. In the meantime, yippee ki-yay everybody, stay safe, eat a lot, and happy holidays from me in Jakarta. I shall return next week, fear not. But, for now, my attention turns to making pavlova (invented by Kiwis, not Aussies,) and the bringing of my 5kg organic, free-range turkey from Bali.

Asian equities mixed in pre-Santa session.

Thankfully, reporters have stopped asking me if we will get a Santa Claus rally in stock markets, as it has well and truly arrived. Wall Street rose again overnight after a strong procession on US data and markets convincing themselves even more, that omicron is a mildly symptomatic storm in a teacup. The S&P 500 rose by 0.62%, while the Nasdaq jumped by 0.82%, with the Dow Jones moving 0.52% higher. Santa and his reindeer may be serving a compulsory quarantine on arrival, but he has still managed to drop off some record highs for the holiday season.

US index futures are closed and Asia itself is having another mixed performance today in line with similar cautious sentiment displayed over the week. The Nikkei 225 has crept 0.10% higher, with the Kospi rising by 0.60% and Taipei climbing by 0.35%. Hong Kong has risen by 0.20% but Mainland exchanges have edged lower. The Shanghai Composite and CSI 300 are 0.35% lower.

Singapore and Jakarta have risen by 0.30% while Kuala Lumpur has edged 0.10% lower. Bangkok has eased by 0.15%, and Manila has retreated by 0.70%. Australian markets are determined to end what is effectively their last trading day for the year on a bright note. The ASX 200 and All Ordinaries have followed Wall Street 0.50% higher today.

Asian markets look very much to be in book-squared waiting-for-midday-to leave-mode. I expect the positive momentum to continue into Northern hemisphere markets this evening, and if omicron remains a side-lined issue, we could see this rally extend into the New Year.

US Dollar trades sideways.

Currency markets look like they have closed for the year now, with overnight trading featuring modest ranges unless you are trading Turkish Lira. The dollar index is almost unchanged overnight, trading at 96.06 today. A daily close under 95.85 sets up a deeper US Dollar correction, potentially into January, assuming omicron remains a storm in a teacup in the minds of the investors globally.

EUR/USD has hardly moved, trading at 1.1330, but still faces resistance above 1.1360. Only a move above 1.1400 suggests a medium-term low could be in place. Improved risk sentiment, especially around omicron, given the UK caseload, appears to be lifting Sterling. It has risen 0.45% to 1.3415. GBP/USD has recaptured 1.3400, signalling a medium-term low. Such is the Prime Minister’s unpopularity in the UK right now, if Boris gets the push over Christmas, Sterling will likely rally once again. USD/JPY is at 114.30 today after US yields edged higher overnight.

The three risk-sentiment amigos, the CAD, AUD, and NZD continued booking modest gains overnight. A rise above 0.7250 for AUD/USD and 0.6850 from NZD/USD will signal further rallies into the new year. USD/CAD is at 1.2850 this morning and needs to close below 1.2750 to signal the same. Price action this morning has seen all three edges lower, suggesting that investors are trimming long positions into the holidays.

Asian currencies continue range trading as the PBOC. Once again, set a weaker Yuan fixing. The Asian interbank market looks to have closed shop for the year now. A stronger Yuan continues to backstop Asian FX from negative sentiment shifts.

Another rally for oil.

The omicron is not-as-bad-as-we-thought trade continued to push oil markets higher overnight, with positive US data reinforcing the theme that the momentum of  US recovery continues and that the US consumer is alive and well and spending.

Brent crude rose 1.55% to $76.75 a barrel. WTI rallied by 1.0% to $73.70 a barrel. With some US futures closed in Asia, only Brent crude is trading this morning and some profit-taking is evident. Brent crude is easing 0.70% to $76.20 in thin trading. $74.75 and $74.45 are initial support, with resistance at 76.90 a barrel, the 100-day moving average (DMA), capping gains overnight. WTI rose through resistance at $73.00 which becomes support. Resistance is at $74.10 initially, it’s 100-DMA.

Gold side-lined overnight.

In line with tight ranges in currency markets and US bonds, gold was side-lined overnight, rising just 0.27% to $1808.50 an ounce. With gold futures closed in Asia, it remains around those levels.

Gold’s attempts to stage a meaningful recovery remain unconvincing, 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. That said, gold could extend its gains into the end of the weak if growth sentiment remains ascendant.

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

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.


Markets Today – Earnings, Fed, BoC, Oil, Gold, Bitcoin



gold bars - Investors King

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

We’re seeing a strong start to trading on Wednesday after what has been a very turbulent start to the week.

We’ve seen some sharp sell-offs already this week but investors appear to be encouraged by just how quickly and strong markets have bounced back. Monday looked like it was going to be a bloodbath in equity markets but rather than panic, investors poured back in and seized upon the lower valuations.

We saw this again after the close on Tuesday, when Microsoft earnings caused another wobble but reassurances around decelerating cloud growth were enough to trigger another wave of bargain hunting and we’re seeing that carry through to Europe today. US futures also look very healthy ahead of a crucial Fed decision later.

Fed misstep could have severe consequences

The Fed could have a big role to play in whether stock markets will build on these encouraging signs. As ever, every word will be poured over so I expect the central bank will take a very careful approach in its communication later on.

They need to be careful to find the right balance between taking inflation seriously and not overdoing it. These markets will be easily spooked so today is all about finding just the right balance. That means sending a clear signal about a March hike and alluding to discussions around balance sheet reduction towards the middle of the year.

We probably won’t get any specifics from Powell on when that will start or how fast it will happen, nor on how many hikes we’ll get this year. He will probably be keen to stress how seriously they’re taking it though and how they’ll do whatever is necessary. Ultimately, we may learn very little but the important thing is we don’t see a misstep as the consequences could be severe.

BoC expected to start aggressive tightening cycle

The Bank of Canada is unlikely to wait until March, with markets quite heavily pricing in a rate hike today and as much as six this year. This comes as inflation has risen to the highest level in 30 years and far above its 1-3% target range. With the labour market also tightening following a strong recovery from the pandemic, the time has arrived for accommodation to be removed.

The only question now is just how fast they’ll move and whether they’ll look to reduce their balance sheet, rather than just aggressively raise rates. The loonie has performed well recently, buoyed by very hawkish rate expectations and we could get more clarity on how accurate they are today.

Oil eyeing triple figures after brief pullback

Oil prices are continuing to edge higher after a brief pullback last week. The move followed some turbulence at the start of the week and came as API reported an 872,000 barrel draw which exceeded expectations. Crude prices are once again closing in on $90 and at this point, it doesn’t look like we’ll be waiting long.

So immediately it becomes a question how long we’ll be waiting for triple figures. The supply/demand dynamics remain favourable and the potential for conflict in Ukraine can only be supportive, as additional risk premiums are priced in. It’s still unlikely that oil and gas will be used as a weapon any time soon but if it was, it could lead to a serious surge in prices given how tight the markets are.

Gold awaits Fed decision

Gold is continuing to hold up ahead of the Fed meeting, close to $1,850 where it has seen some resistance recently. The central bank will have a big role to play on whether the yellow metal breaks above here or below $1,830 support.

It has been rising recently even as the market has priced in four hikes and balance sheet reduction which may suggest we’re seeing some inflation hedging in case more tightening is needed. Risk aversion may also be supporting the gold price. Either way, we should have more clarity later today.

Cause for optimism?

The recovery in bitcoin over the last couple of days has been really encouraging. After falling to around $33,000, more than 50% from its highs, the cryptocurrency has performed extremely well and finds itself 4% higher on the day around $38,000. It’s not out of the woods yet though and if broader risk appetite takes a hit, I’d expect bitcoin to suffer more. Whether that will see it test the crucial $30,000 region, only time will tell, but traders will be very relieved at what they’ve seen this week. The key test above is $40,000, a break of which could see momentum accelerate to the upside.

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Markets Today – Rollercoaster Ride, Fed, Earnings, Ukraine, Oil, Gold, Bitcoin



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

It’s been a rollercoaster start to what was always going to be a massive week in the markets and there’s little reason to expect that to change in the coming days.

The turnaround on Monday was incredible. From eye-watering losses to ending the day in the green; it’s not often you see that kind of action. Investors will no doubt be relieved but that could prove to be short-lived. US futures are back in negative territory ahead of the open – albeit to a much lesser degree at the moment – and even at the close on Monday, the Nasdaq was more than 13% off its highs.

The next couple of days will be huge. So much could hang on the communication from the Fed tomorrow and whether they strike the right balance between taking inflation seriously and not raising rates too aggressively. It’s a tightrope situation but if the central bank can find the right balance, more may be tempted by these levels.

It’s not just on the Fed, of course. On Monday, it was geopolitics that appeared to tip investors over the edge. The reaction looked over the top but that is indicative of the level of underlying anxiety in the markets at the moment. And if things don’t improve this week, we may see more episodes like that.

Which brings us to earnings season and a week in which numerous companies release fourth-quarter results, including a number of big tech names. A disappointing start to the season hasn’t helped to lift the mood but that could change this week. If not, the January blues could turn into something far more unsettling.

Fundamentals remain bullish for oil

Oil got caught up in the sell-everything panic at the start of the week, sliding more than 3% at one stage before recovering a little. There wasn’t much sense behind the move, but the fact that the dollar was strengthening and crude was already seeing profit-taking after peaking just shy of $90, probably contributed to it.

The market remains fundamentally bullish and conflict with Russia does nothing to alleviate supply-side pressures. If anything, the risks are tilted in the other direction, not that I think it will come to that. Nor does the market at this point, it seems.

Still, it was only likely to be a matter of time until oil bulls poured back in and prices are up again today. The correction from the peak was less than 5% so that may be a little premature, but then the market is very tight so perhaps not.

Conditions remain favourable for gold

Gold continues to be well supported at the start of the week, following some turbulent trading conditions and dollar strength. It continued to hold over the last couple of sessions around $1,830 and has pushed higher with $1,850 now in its sights.

The yellow metal is pulling back a little today, off a few dollars, but it remains in a good position. There still appears to be momentum behind the rally which could continue to take it higher. A move through yesterday’s lows could see that slip but at this point in time, conditions continue to look favourable. Of course, the Fed tomorrow could have a huge role to play in whether that continues to be the case which may explain the consolidation in recent days.

A strong recovery for bitcoin

Bitcoin rebounded strongly on Monday, alongside other risk assets that had also been pummelled earlier in the day. It’s trading a little lower today but that won’t be a major concern at this stage as broader risk appetite is holding up so far. Whether that is sustainable will determine how bitcoin responds and that may depend on the Fed tomorrow.

Bitcoin found support at $33,000 on Monday which isn’t far from a hugely important support zone around $30,000. If risk appetite takes a turn for the worse again, we could see that come under severe pressure. If the price can hold above here in the short term, it could be a very positive sign.

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Markets Today – Russia/Ukraine, Fed, Earnings, PMIs, Oil, Gold, Bitcoin



U.S Dollar - Investors King

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

Another woeful start to trading on Monday, as heightened geopolitical risk compounds investor anxiety and drags on risk assets.

It could be a make or break week for the markets, with the Fed meeting on Wednesday, big tech earnings, and ongoing tensions on the Ukraine/Russia border. That may sound a bit over the top given how deep a correction we’ve already seen, particularly in the Nasdaq, but it could get much worse before it gets better.

Wednesday is going to be massive. The Fed needs to strike the right balance between taking inflation seriously and not wanting to cause further unnecessary turmoil in the markets. Not an easy balancing act when four hikes are already priced in, alongside balance sheet reduction, and some are arguing it’s not enough.

That’s a lot of pressure for a meeting that’s not really live but investors will be hanging on every single word. It won’t take much for the Fed to add to the anxiety but if they manage to strike the right chord, it could help settle the markets and draw investors back in.

And then there’s earnings. Netflix got things off to a rotten start for big tech but there’ll be plenty of opportunities to turn that around this week. The Nasdaq has fallen more than 16% from its highs and sits very close to bear market territory. Will investors be tempted back in at these levels if the other big tech names deliver?

Whatever happens, it promises to be a really interesting week in the markets and one that could go terribly wrong or be the turning point. Perhaps that’s oversimplifying things but when fear is in control as it seems to be now, it creates these kinds of extremes.

Weak PMIs as omicron weighs

The PMIs we’ve seen today won’t exactly be helping the mood but we should take them with a pinch of salt given the impact that omicron will have had. The services sector was hit particularly hard, especially in the US, but again that’s to be expected under the circumstance. While the data won’t have helped to lift the mood, it won’t change the outlook for interest rates either. There was cause for optimism in some of the UK service’s forward-looking components which bodes well for the coming months, even as households and businesses are hampered by higher energy costs and taxes.

Oil lower but fundamentals remain bullish

Oil prices are lower at the start of the week as we continue to see some profit-taking alongside another hit to risk appetite. It’s been a remarkable rally and there’s nothing to suggest that prices are peaking. It’s just come a long way in a short period of time but the fundamentals continue to look bullish.

Despite it already trading at very elevated levels, I wouldn’t be surprised if any corrective moves are relatively shallow. There’s still a big issue on the supply side, with OPEC+ unable to even come close to monthly addition targets and it’s happening at a time of strong demand.

Not to mention the fact that tensions are seriously heightened between Russia and the West and an invasion of Ukraine is becoming an increasing possibility. When energy markets are already so tight, the additional risk premium should continue to support prices.

Gold pares earlier gains

Gold got off to a decent start this week as it continued to do well in risk-averse trade, but it has since given those back to trade marginally lower on the day. Whether its performance recently is a safe haven move, inflation hedge, or a combination of the two, it’s certainly been supportive for the yellow metal. And now it’s found strong support around $1,830 where it had been seeing plenty of resistance in recent weeks before breaking higher.

That could be a bullish confirmation signal and there still appears to be a healthy amount of momentum, even as the dollar is performing well. The next big test for gold is $1,850, where it struggled on Thursday before profit-taking kicked in.

A major test of support coming for bitcoin

Another miserable day for bitcoin which is continuing to slide after surpassing the 50% mark a little over two months after hitting record highs. It’s in freefall once more and really suffering in these risk-averse markets.

We’ve seen this before though, extreme moves work both ways and while the market has matured over the years, it is still a highly speculative, high-risk asset class. And high-risk assets are being pummelled.

But bitcoin now has a real test on its hands. The psychological blow of losing $40,000 is nothing compared to what happens if $30,000 falls. This is a major level of technical support that held throughout 2021, despite numerous tests early in the year and then throughout the summer. If this falls, it could get very messy.

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