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.