On Friday, US equities limped into a non-descript finish to the week as inflation fears were compounded by growth fears, notably from China. The S&P 500 fell 0.27%, the Nasdaq tumbled by 1.34%, while the Dow Jones booked a 0.40% gain as investors rotated into value for the weekend. Those same China fears, as the omicron situation darkened there over the weekend, have sent futures on all three major indexes over 0.55% lower in Asian trading.
A similar story is playing out across Asia today, compounded by China’s property developer nerves. The Nikkei 225 fell 0.75%, and South Korea’s Kospi eased 0.35% lower. Mainland China markets are under heavy pressure, the Shanghai Composite tumbling by 1.75%, with the CSI 300 in full retreat, falling by 2.35%. Hong Kong has also taken fright, the Hang Seng dropping by 2.40%.
In regional markets, Singapore is 0.65% lower, Kuala Lumpur is rather surprisingly, unchanged, and Jakarta has climbed 0.65%. The rally in Jakarta has been driven by GoTo’s IPO commencing trading, with its stock climbing 23% on debut. Elsewhere, Bangkok is down 0.45%, and Manila is 0.10% lower. The rise in platinum group metals prices seems to be providing some support to Australian markets, with the ASX 200 and All Ordinaries unchanged. However, the prospect of multiple 0.50% RBNZ rate hikes, starting this week, has sent the NZX 50 0.90% lower.
Nothing around Eastern Europe or the French presidential election will give European equities anything to cheer about this afternoon. Nor will the upcoming ECB meeting with lower risks of hiking offset by what is likely to be darkening growth projections from the ECB.
US dollar holds onto gains
The US dollar has a choppy session on Friday, the dollar index spiking to 100.19 before retreating to finish just 0.10% higher at 99.84. In Asia, an uncertain outlook on multiple fronts has lifted it 0.10% higher to 99.93. US yields, notably long-dated ones, continue to grind higher and will backstop and fall by the greenback. It remains on track to test resistance at 100.50 later this week.
EUR/USD probed 1.0850 on Friday before rallying to finish unchanged at 1.0875. There are plenty of dark clouds on the horizon for Europe this week and any rally towards 1.0950 is likely to be brief. If the Austrian PM makes some peace in our time progress with Vladimir Putin, a relief rally is once again possible. Multi-year support at 1.0800 remains ominously close with risks skewed to the downside. A dovish ECB will compound the negative outlook for the euro. Failure signals more losses to 1.0600 and 1.0300 initially. Resistance is now at 1.1200, with longer-term resistance at 1.1300.
Sterling tested support at 1.3000 on Friday but managed to close just above it. A daily close under 1.3000 signals another round of losses targeting 1.2850 and 1.2700.
USD/JPY left 0.50% higher in Asia as a Bank of Japan official remained dovish on monetary policy and said it could be eased if required. With the US/Japan rate differential soaring, USD/JPY has climbed to 124.90 today and a test of the 125.00 resistance seems imminent, followed by 125.80. Expect more “BOJ speak” above 125.00 initially. That said, any drop to 123.50 should find plenty of keen dip buyers.
AUD/USD and NZD/USD both fell on Friday as China and global growth risks deepened. NZD/USD, fell 0.65% to 0.6847, and has fallen another 0.25% to 0.6830 today. The NZD/USD faces a deeper downside this week if the RBNZ policy decision is not a 0.50% hike, and the statement is perceived as not hawkish enough. AUD/USD appears to be suffering some nerves today after a May election date was announced, with a change in government looking likely at this stage. A deteriorating China situation will weigh heavily on both antipodeans additionally this week.
Asian currencies weakened on Friday in New York time finally and fell again in Asia as USD/CNY rises 0.20% to 6.3720. Fears around China’s growth outlook, and not rising US yields, are driving the weakness. USD/KRW has risen by 0.30%, USD/TWD by 0.35%, USD/SGD by 0.20% and USD/PHP by 0.75%, despite upcoming hawkish BOK and MAS policy decisions this week. It appears Asian currencies will move in lockstep with China’s Covid situation this week.