Big tech hits home runs

Major League Baseball may be struggling to get past the complications of playing matches during a pandemic, but big tech is suffering no such issues. The "gang of four," Alphabet, Amazon, Apple and Facebook all hit match-winning home runs with the release of their Q2 earnings in after-hours trading. Of the four, only Alphabet suffered a sales drop, and even that was less than expected. The other three showed impressive gains and blew forecasts out of the water.

Unsurprisingly, that has also lifted the S&P 500 and Nasdaq in after-market trading, with the Nasdaq 100 up 2.35%. That has taken the edge of a torrid overnight Wall Street session, with markets nerves frazzled after a horrific US GDP print. 

Once again, the y-axis on yet another data chart had to be redrawn in 2020, as US GDP shrunk 32.90% in Q2. The number itself was slightly better than consensus but gave markets a slap of reality across the face. As a known unknown, stock markets only wobbled, but mostly held their own, but oil packed up its bags and went home early. Over in currency markets, the US Dollar sell-off continued as the GDP data confirms the FOMC outlook of lower for longer on the rates front. 

If nothing else, it emphasised just how many torpedoes have struck the real economy below the waterline. The real economy is energy's natural habitat, and it is no surprise prices sank overnight. I will note though that a falling around 2.0% isn't that bad a result. Equities live in their own v-shaped universe and have been in a parallel reality since mid-March. Thus, the modest fall-out was unsurprising as the FOMO gnomes can easily say the next quarter will be better, and it's all going to plan. On this point, they are probably correct.

The GDP data has knocked negotiations over the next round of fiscal stimulus off the front pages. With all the noise surrounding an agreement between the White House and Senate Republicans, two salient points have been overlooked. The Senate package is a pay check cut, and not a pay check protection package. That's not very stimulating in my mind.

Secondly, appropriation bills must be originated in the House of Representatives, and the Democrats control that. Both sides appear to be far distant, by my rough calculations, three trillion versus one trillion dollars. Although a lack of agreement is a definite risk factor that may come back to bite markets if no deal is reached, I still believe that with an election so close, some sort of acceptable deal by both sides will be cobbled together. Neither party wants to be labelled the one that initiated the double-dip recession.

Despite a slew of holidays across Asia muting trading volumes today; Singapore, Indonesia, Malaysia and the Philippines are all away today, the data calendar has been quite busy for the region. Australian PPI underperformed, emphasising that deflation, and not inflation, is the enemy at the moment. South Korean Industrial and Manufacturing Production were both negative, but only modestly so for June. What is important is that both made massive gains over May's numbers, implying a slow, but steady recovery is on track. Even in Japan June Industrial Production managed to show a MoM gain.

By far and away the most important though was China Manufacturing and Non-Manufacturing PMI's for July. Manufacturing crept higher to 51.1, while Non-Manufacturing fell 0.2 to 54.2. Most importantly, both remain comfortably in expansionary territory.

The data shows that Asia's recovery remains on track, albeit unevenly. Combined with the big-tech results this morning, that should combine to limit the fall-out from the fiscal stalemate in Washington DC, and the nightmare US GDP collapse.

Although Europe posts an avalanche of retail sales and GDP data today, it will be the US Personal Income and Spending data for June that will hold the market's attention. Given the acceleration of Covid-19 across the United States in July, the June data has become somewhat irrelevant. Wall Street's focus will remain fixated on the virus-proof business models of US technology companies. Unless PCE data fits the herd's narrative, it will be quickly dismissed.

Equities paint a mixed picture in Asia today

China's PMI data had put a floor under equity markets on Mainland China and Hong Kong this morning, helped by a rebound in US indices in after-market trading. The Shanghai Composite is rising 0.80% while the CSI 300 and Hang Seng are flat for the session. 

Elsewhere though, the picture is less rosy. Covid-19 concerns, the weak US GDP data and a much stronger Yen on currency markets, has seen the Nikkei 225 fall 2.20% today. Much the same story is being told in Australia, where Covid-19 transmissions continue in their hundreds in Victoria. More concerning, community transmission in Sydney remain at stubborn levels. The ASX 200 and All Ordinaries are both 1.40% lower.

With most of South East Asia on holiday today, activity in the region is muted. The after-hour results from US big-tech should limit the fall-out on European stock markets this afternoon. However, sectors with exposure to the real economy, versus the digital one, are still likely to feel the chill winds of the US GDP reality check from overnight.

The US Dollar sell-off continues

US yields fell once again across the curve after America's nightmare GDP print overnight. That continued to pull the rug from under the greenback, as the fiscal stimulus stalemate and Trump noise election dates continued to weigh heavily. The USD Dollar fell overnight and has kept falling in Asia today. 

It was the major currencies though that gained the most benefit, implying that much of the recent selling of the Dollar is being driven by haven-based posturing. That haven being any major economy that isn't the United States at the moment. The dollar index of major currencies sank another 0.50% to 92.99, taking out support at 93.20. It now targets support at 92. 25 although, by this stage, the US Dollar will be heavily oversold. The move lower may not be so linear from here on. That said the 

EUR/USD and GBP/USD both outperformed once again. EUR/USD broke 1.1800 and closed at its highs at 1.1845. It has risen 0.30% in Asia, touching 1.1885 this morning, just shy of its initial 1.1900 targets. A break of 1.1900 targets resistance at 1.2000. GBP/USD rose an impressive 0.80% to close at 1.3095. it has risen another 0.30% to 1.3135 this morning. GBP/USD is now within shouting distance of 1.3200. That is a series of multiple daily tops from early 2020 and is a formidable resistance zone. GBP/USD could be vulnerable to some aggressive intra-day pullbacks as it nears this level, especially with European Union post-Brexit negotiations at an impasse.

The Japanese Yen continues to make impressive inroads on the Dollar, USD/JPY falling 0.45% to 107.25 this morning. That will likely add more gloom to the export facing Nikkei, and after finally breaking 106.00 earlier this week, Yen haven flows have been prevalent. USD/JPY's downside technical target is around 102.00, with momentum remaining strong in the currency pair. We will almost certainly start getting "watching the currency closely" noise from the Bank of Japan as those levels approach.

The Antipodeans both rallied overnight, but less so than the other majors. Covid-19 doubts are weighing heavily on the AUD and have spilt over onto the NZD. Both AUD/USD and NZD.USD should continue to track higher, but progress will be much slower than elsewhere.

Although the US Dollar has fallen heavily this week, that is likely to continue as lower US yields, US politics, and pandemic fall-out keep the downside momentum strong.

Oil wilts after US GDP

Both Brent crude and WTI sank aggressively after the US GDP release, over 5.0% at one stage, before recovering much of those losses by the end of the session. Brent crude fell to $41.50 a barrel before recovering to close down 1.0% at $43.00 a barrel. WTI fell to $38.70 a barrel before recovering to close down 2.40% at $40.40 a barrel. In holiday-thinned trading, both contracts have edged 20 cents lower in Asia.

WTI's more negative response is unsurprising, given its greater direct exposure to the US economy. Pleasingly, both contracts managed to avoid breaking longer-term supports during the intra-day volatility narrowly. The price action overnight has likely washed out quite a bit of stale speculative long positioning, leaving oil exposures much more balanced. 

Oil's rapid bounce from the sell-off lows suggests that plenty of interest lies in wait to scoop up black gold on material dips in prices. One could argue that the Q2 GDP is a backwards-looking data point, skewed by lockdowns in the US. The actual consumption picture could now be far more robust. A weaker US Dollar should become more supportive of oil at these lower price levels. Only a loss of $40.00 a barrel for Brent crude, or $37.00 a barrel for WTI, will imply a much deeper correction is upon markets. 

Gold continues its bullish consolidation

Gold dropped from $1975.00 an ounce to $1941.00 an ounce in volatile trading after the US GDP release. However, it weathered the storm, climbing late in the session to finish 0.75% lower at $1956.00 an ounce. That leaves gold comfortably above $1950.00 an ounce and it bullish consolidation intact. 

Gold has weathered a few storms this week and passed with flying colours, albeit with some heart-pumping volatility. In Asia, gold is once again higher. It has regained all its overnight losses, climbing to $1575.00 an ounce, as the US Dollar continues to fall sharply this morning.

Lower US real yields and a consistently weaker US Dollar are persuasive arguments for higher gold prices, and the market appears to agree. Haven derived buying also seems evident. What has been noticeable this week, is the pace with which gold has recovered material intra-day losses. That implies that gold has an avalanche of willing buyers hunting for the exposure on significant dips.

Golds' downside should remain well supported around $1941.00 an ounce, with resistance at $1981.00 an ounce, ahead of the psychological $2000.00 an ounce region. Here again, I expect option-related selling to appear. Yet again, though, I expect an immediate jump in prices once that level is cleared.

Bitcoin 

Some very bullish price action has occurred in Bitcoin this week. Bitcoin broke long-term resistance at $10,500 on its way to $11,000 as the week ends. The almost 10% gain for the week implies that Bitcoin is once again finding its electronic safe-haven feet. A weaker Dollar, US politics and the re-emergence of Covid-19 across the globe give traders plenty of reasons to think just that.

Bitcoin has consolidated for most of the week around the $11,000 level in quite bullish technical price action. With none of the above factors likely to change anytime soon, the supportive case is expected to continue. Only a weekly close below 10,500 invalidates that premise.

On the upside, Bitcoin has initial resistance at the week’s highs around $11,420, with its next price target after that, the August 2019 high at $12,324.