US FDA approval of the one-shot Johnson and Johnson Covid-19 vaccine over the weekend has seen the global recovery trade reappear with a vengeance, at least overnight across the APAC region. Equities, energy and commodities all jumped higher, as have the cyclical Commonwealth currencies.
“Even precious metals have found some friends today, while Asian regional currencies have moved higher as well,” Jeffrey Halley, a senior market analyst for the Asia Pacific region at OANDA, tells City A.M. from Jakarta this morning.
With markets freshly vaccinated with the latest buy everything potion, they were able to shrug off a very mixed bag of China and pan-Asia manufacturing PMI’s overnight UK time.
China released official manufacturing and services PMI’s yesterday, “which disappointed,” Halley said. The manufacturing PMI releases across the rest of Asia told “a similar underperformance story,” with South Korea’s Balance of Trade showing surging imports and lower exports.
“Much of the blame can be laid at the heels of the Lunar New Year break in February and rising commodity prices,” Halley explained.
“On that basis, financial markets have given a pass mark to the data’s seasonal factors, meaning fall-out has swamped in vaccine news,” he added. “Financial markets may not be as sympathetic next month if that trend is repeated. However, a month is a decade these days.”
China’s annual party conference this week
China’s annual People’s Political Consultative Conference and National People’s Congress are taking place this week, on Thursday and Friday.
Halley expects an explicit GDP target to be dropped again, emphasising self-reliance, notably in semi-conductors, domestic consumption, and green energy.
“Various Chinese officials are mumbling about rear earth elements this morning. With the Western world having outsourced rare earth refining to China because it is too polluting, in one of the dumbest nimby-ism strategic moves ever, expect comments in this direction to have more impact than the late week congress’ themselves,” he noted.
“The Western world has outsourced rare earth refining to China … one of the dumbest nimby-ism strategic moves ever.”
Europe, the United Kingdom and the United States all release PMI’s this week, starting with manufacturing today. The picture should be one of resilience in manufacturing, while services suffer due to Covid-19 interruptions.
The US also releases factory Orders, ADP employment and jobless claims, all of which could outperform as California’s January lockdowns ended, Halley pointed out. The week culminates in the US Non-Farm Payroll data, with the street currently forecasting a gain of 140,000 jobs. Depending on the ADP data, he pointed out that will likely change, probably to the topside.
“Any or all of the US data could stoke the inflation fear trade again, and I note that the US House of Representatives passed the Biden $1.90 trillion stimulus package on Saturday,” Halley said.
It now moves to a much more challenging reading in the Senate, although the minimum wage hike’s dropping should ease its passage before the March 14th deadline expiry of the previous stimulus measures, he continued.
“Stimulus noise has been blissfully quiet of late, and I’d frankly got sick of writing about it every day. That noise will amp this week as the bill hits the Senate. With a market suddenly nervous about inflation, $1.9 trillion sounds inflationary to me, so don’t bet on the bills progress this week not having an impact,” Halley noted.
Equities race higher on vaccines and stimulus
Friday saw another chaotic day on Wall Street, with the Nasdaq finishing higher while the S&P 500 and Dow Jones continued falling. It is all about the J&J vaccine re-energising the global recovery trade today in Asia, though, with regional markets rallying strongly, Halley pointed out.
Although the week has started on a positive note, the recovery is “far less vaccine powered” than we have seen in times past, he added.
“Europe will reluctantly follow suit, but the heavy data and event risk calendar, the US stimulus bill all provide plenty of fodder for the inflation vigilantes to reappear. Today’s rally looks like a mechanical reaction to the J&J news, but markets have not shaken off the trauma and doubts of last week yet,” Halley pointed out.
Oil recoups some losses
On Friday, oil prices fell to earth, reflecting the general market retreat that swept asset classes as the week ended. Brent crude fell 3.90 per cent, to $64.40 a barrel, and WTI fell 3.05 per cent, to $61.95 a barrel.
In Asia earkuer today, the J&J news has lifted recovery sentiment in the commodity and energy space, raising prices. Brent crude rose by 1.50 per cent to $65.35 barrel, and WTI is climbing by 1.40 per cent to $62.40.
“The rapid rebound reflects the tight physical market, and the backwardation fo the prompt and longer-dated futures curves,” Halley concluded.