Asia bets on China’s stimulus

Jeffrey Halley

Mainland China’s stock prices have risen sharply after Wednesday’s inflation data showed benign inflation.

Inflation in April rose to 2.10% (1.8% exp), and inflation in April increased by 0.40% (expected 0.20%). PPI also dropped from 8.30% last month to 8.0%.

Prime Minister Lee continues to make noise about the possibility of broader economic support, but even if China crushes the economy, it still succumbs to the Zero-COVID policy, and the People’s Bank of China, along with ongoing rhetoric, is liquidity. There are no signs of loosening the tap. There are no signs of “targeted stimulus”, but there are no signs that China has moved away from its de-leveraging stance. If workers cannot leave the block to build a road or return to a factory, opening the faucet now has limited impact.

Something like that Mixed messaging It doesn’t have a market advantage, but it’s not just China.

The daily Fed speaker rent is also a bit “mixed”. We saw some large range of equities and bonds overnight as increasingly enthusiastic markets are chasing their tails in recession and the Fed’s hiking / inflation grip.

On Bloomberg television, the Fed’s Loretta Mester didn’t help things by saying, “We don’t exclude 75 forever.” This means that a 75bps hike can occur.

Long-term yields in the United States fell sharply overnight as the streets tentatively bid on “peak hikes,” but remained unchanged for the more rate-sensitive two years.

According to a survey by the National Federation of Independent Business Associations (NFIB), inflation in the United States will not drop sharply anytime soon. Pricing changes and 3-month pricing plan sub-indexes are stronger than ever, suggesting higher costs, and the ability to pass them on to consumers is stronger than ever.

That doesn’t stop the US federal government, which is nervous about mid-November, trying to do anything about inflation as diesel and gasoline prices soar. President Biden has hinted that there may be a temporary suspension of federal fuel taxes on the card and is actively seeking to eliminate tariffs on Chinese products during the Trump era to lower the CPI.

This has led to an increase in US equity futures. But just because you’re approaching the peak of inflation doesn’t mean it’s going down suddenly. It’s just as easy to move sideways for a while.

One of the risk factors that is always ignored is the Ukrainian War.

Ukraine has announced that it will stop exporting gas to the west via the compressor hub as Russia sucks gas into Donetsk’s vassals. I am trying to redirect the flow to another interchange under the control of Ukraine.

Not surprisingly, Gazprom disagrees, but the threat of Europe’s gas supply turmoil seems to be boosting oil sharply in Asia on Wednesday, helped by stimulating hopes from China. If Russia’s gas is reduced to Europe, all bets on inflation will be void.

New Zealand announced on July 1 that it will fully reopen its borders within six weeks. The New Zealand dollar is up 0.25%, due to a gradual recovery in risk sentiment.

Like everything that has to do with Covid recovery According to the government and reserve blanks, it’s too little and too late. Over 1.1000 AUD / NZD may encourage Australian skiers to explore the Tasman Sea during the winter season, but will be shocked by the number of New Zealand pesos needed to buy something. ..

Unless Russia’s gas is directed to Europe, New Zealand will continue to be my number one choice for a hard landing later this year among developed countries.

The evening highlight is US inflation data. Core inflation is expected to fall from 6.50% to 6.0% in April, and headline inflation is still expected to fall to a spectacular 8.10%.

Expect binary results from the data. When the print goes down, the Fed’s rate hike will be priced, suitable for stocks and bonds, and negatively impacting the US dollar. The stubbornly high print looks further at the Fed’s tightening. Not good for stocks and bonds, but good for the US dollar.

Also note the official US crude oil inventory data, especially the refined gasoline and distillate categories. There is a lot of oil in the United States, but like the rest of the world, it seems to be struggling to refine it into diesel. If subcategory inventories drop sharply, WTI could see a sharp rise, which would be a headwind for equities as well.

Bitcoin roller coaster ride

finally, Cryptography There was a volatile session and Bitcoin lost much of their profits after showing an impressive rally during the day, ending at $ 31,000.00, 3.0% higher.

BTC failed shortly before resistance at $ 33,000.00 overnight. This is a bearish technological development. A failure of $ 30,000.00 may indicate that the next wave of Bitcoin is going down. This should target $ 17,000.00 weeks or days ahead.

I’m watching the situation of (unstable) coins and a one-to-one US dollar peg is broken in space. I have previously warned that so-called stablecoins have strained me due to opacity, do they actually have a $ 1 reserve for each (unstable) stablecoin issued? ??

The confusion here can bring more downward pressure Cryptocurrency space.

Asian stocks are mixed

It wasn’t a definitive overnight session in New York, as concerns about a recession and falling oil prices seemed to weigh on value stocks.

The S & P 500 rose 0.25% and the Nasdaq rose 0.98%, while the Dow Jones fell 0.26% to end the session. In Asia, Nasdaq futures rose 0.75%, S & P 500 futures rose 0.35% and Dow futures rose 0.23%.

Part of the rise in US futures could be explained by the outperformance of the Chinese stock market on Wednesday.

Due to the benign inflation data, the Chinese market may move rapidly to prices, further strengthening China’s stimulus in the future. As a result, the Shanghai Composite Index rose 1.63%, the CSI 300 rose 2.04%, and the Hang Seng Index rose 1.62%.

The Nikkei 225 for Nasdaq rose only 0.12%, while the Kospi fell 0.20% and Taipei remained unchanged. Singapore is down 0.60% and Kuala Lumpur is up 0.15% prior to BNM’s policy decisions.

In Australia, All Ordinaries decreased by 0.12% and ASX 200 decreased by 0.28%. Overall, this photo is one of the markets left to our devices after sessions in the US are uncertain and headline reels in Asia are slow.

Asian oil rally

Oil prices continued to fall overnight as China slowed its nerves and increasingly fears of a recession in the United States weighed on prices. In Asia, after benign inflation data, most Chinese stimulus measures can skyrocket energy market prices, and Ukraine’s gas turmoil could have a flow-through impact on oil prices.

Overnight, Brent crude closed at $ 101.50, down 3.55%, and WTI closed at $ 99.00 a barrel, down 3.45%.

Asian prices rose 3.30% to $ 104.80 for Brent crude and WTI to $ 102.05 a barrel, up 3.10%.

Brent crude forms a triple top at $ 114.75 a barrel, which could be a formidable barrier in the short term. Supported for $ 101.50. I’m sticking to the wider range of $ 100.00 to $ 120.00 for now. WTI’s resistance is $ 111.50 and support is $ 98.50 a barrel. Again, we are happy with the outlook for $ 95.00 to $ 115.00 over the medium term.

Gold looks unstable

Gold price behavior can only be said to be negative overnight. Gold fell 0.84% ​​to $ 1838.50 per ounce, supported at $ 1850.00, despite lower US yields and the US dollar flat. In Asia, prior to US inflation data, there was little interest from regional players and gold was not moved from near New York.

Gold is now $ 1835.00, just above the apex of the triangle, and its breakout showed an increase in gold of $ 2060.00 per ounce in early February. It must be said that daily closings below $ 1835.00 will be an ominous technological development, and recent price behavior in gold has suggested that downside risks are at stake.


Jeffrey Halley is a Senior Market Analyst at Asia Pacific. OANDA

Opinions are those of the author and not necessarily those of OANDA Global Corporation or its affiliates, subsidiaries, officers or directors. Leveraged trading is risky and not suitable for everyone. Losses can exceed investments.

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