Liquidity has been hit in Asia today with Mainland China and South Korea on holiday and a partial holiday in Australia. Although Wall Street performed well on Friday, which fed through to lower US yields and the US Dollar slipping, news that the Hong Kong Stock Exchange has suspended China Evergrande Group share from trading from today, and related structured products, has put China nerves back front and centre with regional investors.

Evergrande is has a $260 million offshore note maturing today, which only has a five-day “grace” period, and if no sign of payment occurs, the negative noise around the company and China’s property market will increase once again. There still remains very little visibility from the Chinese Government over Evergrande’s fate, although a slow and steady dismantling of the company appears to be the favoured course right now. Mainland China is away until Friday, which is rather unfortunate timing, especially if Evergrande misses that note redemption today.

The data calendar is empty in Asia today, literally, leaving markets at the mercy of headline-driven volatility in a low-liquidity environment. Globally, the calendar is thin as well with only US Factory Orders this evening of moderate importance. By far and away the most important event today will be the OPEC+ meeting, given the surge in energy prices around the world and the blackouts in China. OPEC+ has a regular record of surprising, but I doubt that the grouping will be willing to much more than throw a few band aids on production levels. With compliance well over 100% amongst members, they probably don’t have the capacity to aggressively ramp up production at short notice anyway. The December production cuts could be brought forward to November as a placation mechanism, but after a torrid 18 months, the temptation to fill depleted state coffers is probably too much to resist right now. I do note that the world was working just fine when oil prices were touching $140.00 a barrel. This is a natural gas and coal problem, not an oil problem. Oil is just the accidental tourist.

In the US the $3.5 trillion build back better and $1.0 trillion (or is it 550 billion?) infrastructure packages remain mired in limbo amongst the squabbling democrats. The debt ceiling, kicked down the road to December, also remains up in the air. Perversely, US markets seem to be liking the uncertainty caused by the Democrat “progressive” wing, who need to understand the words “mid-term elections” and “claim the centre.” The stock market, in particular, takes a liking to government paralysis or infighting. That equals no change to policy equals status quo equals buy everything. It wouldn’t surprise me in the least this week, if US stock markets rally inversely proportionally to Democrat infighting.

All roads of course, will lead to the US Non-Farm Payrolls data from the US on Friday. Easing virus cases and the end of summer holidays, along with school reopening should see an improvement on August’s shocker of a number. Markets are forecasting a gain of around 500,000 jobs for September, although that number becomes a moving target as the week goes on and forecasts are refined. A number much lower than 500k will see Fed taper expectations dialled back, although probably at the expense of increasing stagflation noise. I’m not sure how to position for that but buy-everything seems to usually work no matter what. Conversely, a much higher number will lock and load a December taper start, assuming any FOMC members can be drawn away from their personal trading accounts and are left to vote next month. That should see the slow taper-tantrum-lite of the last two weeks resume.

In Asia-Pacific, we have three central banks announcing policy decisions this week. Australia’s RBA will remain unchanged tomorrow and having already hedged its bets expertly in previous statements, will remain ultra-dovishly on the fence with optionality to jump each way. The Reserve Bank of India has ignored stagflation for all this year, and I expect them to do so once again and hold rates unchanged. Like the Philippine’s BSP, if the Non-Farm’s this Friday confirm a Fed taper, it’s going to be hard to maintain that low and hope policy. Expect pressure to remain on the Rupee, especially with energy prices likely to increases importer INR selling.

New Zealand’s RBNZ policy decision is due on Wednesday with the central bank delaying last meeting’s scheduled interest rate hike because of the arrival of the delta-variant the day before in Auckland. History is repeating itself it seems, with the virus jumping the Auckland fence into a surrounding province over the weekend. If they spike before Wednesday, I expect the RBNZ to have another “least worst option” and postpone once again. They may telegraph an above 0.25% hike to make up for it in the future, but there probably aren’t many reasons to be aggressively buying Kiwi this week.

A mixed day for Asian stock markets

US markets started the quarter strongly on Friday, boosted by positive results from a trial of Merck’s oral Covid-19 treatment, a postponement of the US debt ceiling deadline and start of month inflows. The S&P 500 rallied by 1.15%, the Nasdaq rose by 0.82% and the Dow Jones jumped by 1.44%, although the buy-the-dippers couldn’t prevent a negative weekly performance overall. Futures on all three have given back some of those gains this morning, Nasdaq futures retreating by 0.40%, while Dow and S%P futures are 0.25% lower.

That sees a mixed performance in Asia, complicated by the news that Evergrande’s stock has been suspended in Hong Kong, with a $260 million note due for repayment today. In Japan, the Nikkei 225 has fallen by 1.10% ahead of a Parliamentary vote also, to confirm he appointment of the new Prime Minister. South Korea and Mainland China are closed.

Hong Kong has sunk by 2.55% on Evergrande nerves while Taipei is down by 0.60%. Singapore is rallying strongly though, rising by 1.25% today as news circulates about the government talking to other governments about vaccinated travel. Kuala Lumpur is flat with Bangkok 0.75% higher, Jakarta leaping 1.40% higher, and Manilla rising 0.30%. With the cyclical legacy-industry orientated Dow Jones outperforming Friday, it appears that similarly structured ASEAN markets are following suit.

Australian markets are also rallying strongly today, with iron ore futures rising 5.0% in Asia, and Natural Gas futures rising by 3.60%. However, it is banks leading the charge on an oversubscribed CBA buyback as holiday-thinned markets follow New York’s lead. The ASX 200 and All Ordinaries have climbed by 0.80%.

European markets have an equally thin data calendar ahead of them today, and watching the outperformance of the Dow Jones and ASEAN and Australian markets, are likely to open higher this afternoon after finishing lower on Friday. Much will depend on the outcome of the OPEC+ meeting this afternoon. If OPEC+ remains unmoved, Northern hemisphere energy woes will reassert themselves, which could undo any initial moves higher.

Profit-taking forces the US Dollar lower

With US stock markets finishing Friday on a positive note, boosted by Merck’s oral Covid-19 treatment that lifted hopes of a boost in economic recovery, the US Dollar gave back some more of its recent gains. US yields also fell modestly, further undermining the US Dollar with soothed nerves on Friday lessening the haven bid. The dollar index fell by 0.18% to 94.07.

The dollar index has risen slightly to 94.10 in Asia as US 10-year futures fell after the Democrat legislative logjam became even more so over the weekend. Overall though, with a number of holidays in the region Asian currency markets are very quiet today.

EUR/USD and GBP/USD staged corrective rallies on Friday as the US Dollar fell. However, EUR/USD remains below 1.1600 in Asia this morning and remains near to the bottom of its weekly range. Only a rally through 1.1660 changes the bearish outlook. GBP/USD rose 0.50% on Friday to 1.3545, edging lower to 1.3535 in Asia. The aggressive rally is as much a function of the equally aggressive sell-off last week than anything else. There is still plenty of risk around the Pound, be it energy or Northern Ireland/Europe, of supply chain shortages. Only a move above 1.3620 signals respite.

USD/JPY has fallen back to 111.05 today as US yields edged lower pushing the US Dollar lower on Friday. Despite a change in Prime Minister and an impending election, USD/JPY remains strictly a yield differential play right now. Pivot support remains at 110.50. The easing of risk aversion nerves on Friday has seen both AUD/USD and NZD/USD rise by around 0.50% to 0.7260 and 0.6935 as of this morning. Both remain vulnerable from a technical basis and any drop in risk sentiment, something I suspect, is only taking a short break. NZD/USD fell this morning after Covid-19 cases were reported outside of Auckland in the weekend. However, the government is going ahead with a lightening of restrictions in Auckland this week, and it has regained all of those losses.

With Mainland China and South Korea on holiday, Asian currencies are having a very quiet session today, and are mostly unchanged from their New York closes. Asian currencies pared their losses on Friday as the US Dollar weakened but I believe the US Dollar weakness is temporary and their downtrend will resume, particularly the more vulnerable INR, IDR, THB and PHP. We could be in for a week of range-trading ahead though ahead of Friday’s US Non-Farm Payrolls. A strong number will reinvigorate the Fed taper and be a headwind for Asian FX.

Oil awaits OPEC+

Oil markets are quiet in Asia with Mainland China and South Korea on holiday. On Friday, a weaker US Dollar saw Brent crude and WTI rise modestly in lacklustre trading. Brent crude rose by 1.05% to $79.15, and Brent crude rose by 0.90% to $75.70 a barrel, where both remain in Asia.

Oil markets are clearly waiting for the outcome of the OPEC+ meeting this afternoon where the grouping will decide on whether to adjust production targets to mollify the tremors in world energy markets. I expect a binary knee-jerk reaction to the meeting’s decisions. A hike in production targets leading to an immediate spike lower in prices, and, if, unchanged, a spike higher in oil prices.

Brent crude could well trade at either $76.00 or $82.00 when the meetings results are released. Given that natural gas prices remain in space, having risen again today in Asia, I believe any knee-jerk spike lower by either Brent crude or WTI will be short-lived. Even if OPEC+ increases production, there will be at least a month’s delay and probably longer before the pumps spool up. Nothing that OPEC+ does will alleviate immediate demand in the oil spot market and will certainly not impact gas markets.

Brent crude has support at $76.60 and $76.00 a barrel, with resistance at $79.50 and $80.75 a barrel. WTI has support at $74.25 and $73.00 a barrel, with resistance at $76.00 and $76.60 a barrel. The technical outlook remains constructive for both contracts.

Gold rises on lower US Dollar

Gold rose modestly on Friday as the US Dollar eased. Gold finished the day 0.22% higher at $1761.00 an ounce, before easing slightly to $1798.20 an ounce in moribund Asian trading today. What will give long-suffering gold bulls some cheer is that gold has consolidated the strong gains it made last Thursday.

The relief could be short-lived though is the US Dollar uptrend resumes in earnest this week. However, if currency markets spend the week consolidating ahead of Friday’s Non-Farm Payrolls, the gold rally could continue as more medium-term bottom fishers are lured in.

Gold has support at $1750.00 followed by a double bottom at $1722.00 an ounce. Initial resistance appears at $1766.00 followed by $1780.00 an ounce. Gold will face far more formidable resistance in the $1800.00 to $1808.00 an ounce zone, technical resistance and housing the 100 and 200-day moving averages.