Wall Street experienced an Economics 101 session overnight with the Federal Reserve holding rates steady and leaving the street in no doubt it has joined the “wait-and-see club” of global central banks.
With no mention of an impending rate cut anytime soon, the US dollar rose, tracking higher US yields and equities, while gold and oil fell after a choppy session. Hidden amongst the noise, a blowout in US official crude inventories and rather sickly US ISM manufacturing data suggests the US is not entirely immune to the malaise affecting the rest of the world.
With China and Japan on holiday, trading will likely be muted in the region today, but the rest of Asia will have its own moment in the sun at 0830 Singapore time. South Korea’s inflation rate rose a still sickly 0.6% early this morning, beating expectations, and this will be followed by a raft of Nikkei Manufacturing PMIs for April from Indonesia, Malaysia, Philippines, South Korea, Thailand, Taiwan and Vietnam. This represents quite a list from the workshop of the world, and persistent downside misses could reinforce the two-speed economy thesis and take more lustre from the regional markets.
All is not lost, however, with noise coming from Steve Mnuchin in Beijing that the latest round of trade talks are progressing well and a possible deal is on the horizon. Talks move back to Washington next week, but a deal can’t come soon enough for Asia and indeed the world’s markets before the sugar rush of Chinese stimulus starts to fade.
Europe will also announce a raft of PMIs this afternoon, including the closely watched German data. This will be followed by the Bank of England rate decision, which is universally predicted to remain unchanged as we await Brexit – or not. Tomorrow will finish with a bang when the US Non-Farm Payrolls is released, with the street looking for a climb of 180,000 jobs.
Currencies
The US dollar rose slightly against developed market currencies as US bond yields moved higher following a neutral FOMC. In a holiday-thinned market, we anticipate a similar theme in Asia. As the dust settles ahead of tomorrow’s Non-Farm Payrolls data, the US dollar should maintain its spot as the developed-market high-yielder of choice.
Equities
Wall Street had a lacklustre session as the Federal Reserve refused to play the game and become openly dovish on interest rates. The S&P fell 0.75%, while the Nasdaq and the Dow Jones were down 0.6%. With quarterly earnings season mostly behind us, attention will soon return to fundamentals, and not before time. However, with China and Japan still on holiday, volumes will be muted.
That said, it’s likely regional markets will open lower in line with Wall Street, however, the picture will be complicated by the raft of PMI data released ahead of their openings this morning. An outperformance could see the fallout from Wall Street limited, but if the region’s PMI releases are poor, this could add more dark storm clouds to Asia’s stock markets today.
Oil
Venezuela’s march of the people on the Presidential Palace in Caracas seems to have faded as the President appears to remain in firm control of the military. That took some of the near-term risk premium out of oil, leaving a stronger post-Fed dollar to weigh on the black gold. Brent Crude rose a minuscule 0.1% to USD72.15 a barrel, on a day where oil was not the centre of attention. Much higher official US inventories weighed on WTI, which fell 0.5% to USD63.60 a barrel. Both contracts seem to have found an equilibrium at these levels over the past few days, and we expect that to continue in the Asian session.
Gold
Although gold had a choppy day, as the dust settled, the yellow metal finished its session 0.6% lower at USD1,276.00 an ounce. A wait-and-see Fed and the ensuing dollar strength capped any nascent rallies. Although equities underperformed, higher US yields should maintain gold’s status quo at these levels. In the absence of any geopolitical surprises in today’s session, we expect a quiet day due to the China holiday.
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Jeffrey Halley Senior Market Analyst, Asia Pacific at OANDA
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Melinda Earsdon Global Head of Public Relations at OANDA
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