Deep freeze

US markets were closed for a public holiday overnight. That was probably no bad thing as rolling blackouts swept parts of the US due to unnaturally cold weather sweeping the country, notably Texas. The blackouts themselves pushed up spot electricity prices into an orbit that would make Elon Mus proud. It also took around 1 million barrels of oil production offline and closed refineries in the Lone Star State.

Against that backdrop, oil prices held onto their Asian session gains and oil markets are likely to ignore the very overbought technical indicators until the sunshine returns to the US. Oil futures have moved deeper into backwardation (a bullish indicator for prices), and any correction when it comes, is likely to be short-lived unless the curves flatten.

Elsewhere, industrial metals remain firm suggesting that the global recovery trade has yet to suffer any new-variant Covid-19 wobbles. Copper, Nickel, Aluminium and Tin remain at recent highs, with Platinum climbing 2.20% in Asia today, following a 4.0% gain yesterday, indicating a massive pent-up demand for catalytic converters is coming.

The US President's Day holiday didn't stop the futures on the S&P 500, Nasdaq, and Dow Jones, from each adding over 0.40% yesterday and bodes well for the reopening this afternoon. On currency markets, the US Dollar remained under pressure, with the dollar index testing support at 90.25 with the pro-cyclical Commonwealth currencies (those countries ruled by our Majesty Queen Elizabeth), and regional Asia the prime beneficiaries.

Probably the only warning sign at the moment to the buy-everything global recovery trade comes from USD/JPY, which has bucked the sell Dollar trend and risen from 104.50 late last week, to 105.60 this morning. The primary driver is a firming of US yields on Friday with the 30-year edging above the 2.0% mark. Everything I have described above is inflationary, although until international borders reopen, and people can move around again, not excessively so. The panic of a return to 70's style inflation is overdone, inflation has been missing in action for the last 20 years and will remain so in a globalised economy. Nevertheless, if the US 10-year grinds towards 2.0% in the next few months, it will give the Dollar sell-off and the equity rally food for thought.

There is certainly no signs of inflation this morning in Asia, with South Korean import and export price data firmly anchored in negative territory. The RBA minutes also stated that the economy would need "very significant" monetary policy support for some time to come. Indonesia's trade balance yesterday was flattered by falling imports, suggesting flat demand and a trend showing no signs of reversing soon. Domestic demand across Asia (including China), remains muted, even as the manufacturing/export sectors continue to recover.

Singapore releases its "Emerging Stronger Budget" for 2021 today. Having thrown money at the Covid-19 recession in 2020, government largesse will remain expansionary in 2021, but on a less biblical scale. Support will be much more targeted, emphasising retraining and upskilling the workforce, and continued support for tourism and aviation sectors. Other sectors of the economy will find the goodie bag empty, which may see banking and property stocks come under some short-term pressure, along with retail. 

Germany releases its ZEW Economic Sentiment Index this afternoon, which will be the highlight of the European session. It is expected to show lockdown fatigue, something prevalent in EU data of late, with the Eurozone well behind the curve on the vaccination front. By contrast, UK markets should continue to outperform as the rapid vaccination pace has markets scrambling to reassess Britain's recovery outlook.

The data calendar is bare in the United States today, where the big chill will probably knock stimulus-watch off the front pages. Nevertheless, Wall Street should come into the office remotely in full stimulus and vaccine-led recovery mode. Keep buying everything. 

Asian equities are off to a strong start

Yesterday's close by the Nikkei 225 above 30,000, last seen in 1990, appears to be spurring more buyers into the markets this morning, helped along by Bank of Japan Governor Kuroda. Mr Kuroda stated today, that the BoJ wouldn't seek to exit, or stop its buying of ETF's, which form part of its ongoing quantitative easing programme. That has lifted the Nikkei 225 by an impressive 1.40% today. 

US index futures have crept higher by around 0.15% with most of Asia in the green, although showing less exuberance then Japan. The Kospi has risen by 0.20%, and with Hong Kong returning from holiday, the Hang Seng has played catch-up, powering 1.70% higher today. Singapore has drifted 0.30% higher, with Kuala Lumpur edging 0.15% higher and Jakarta has climbed 0.80% as expectations of a Friday rate cute rise. Bumper results from BHP have lifted Australian markets, along with dovish RBA minutes. The All Ordinaries are 0.50% higher, and the ASX 200 has risen by 0.40%.

Although not showing quite the same momentum as yesterday, a combination of dovish central banks, and the ever-present US stimulus and vaccine hopes have kept equity markets in business as usual mode. With the data calendar ultra-light, only a headline surprise could threaten the buy everything narrative in the near-term.

The US Dollar continues to retreat

The dollar index finished the overnight session almost unchanged with volatility squashed by the US holiday. However, the US Dollar retreat has restarted this morning, with the dollar index falling 0.26% to test support at 90.25. Failure sets up a move lower to 90.00 ahead of the January lows at 89.20. Only a move higher again by US yields in New York this evening is likely to stem the short-term bearish narrative.

The dollar weakness today is relatively broad-based across both developed and regional Asian currencies. EUR/USD has risen 0.16% to resistance at 1.2150, signalling further gains to 1.2200 is possible. GBP/USD has climbed 0.36% to 1.3950 in its new role as the markets' vaccination darling. An attempt on 1.4000 seems likely in the next 24 hours. The New Zealand Dollar is 0.50% higher, while the Australian and Canadian Dollars have risen 0.30%.

In Asia, regional currencies are all higher versus the greenback, led by the Indonesian Rupiah, with USD/IDR falling to 13,900.00 today. If USD/IDR holds under 14,000 this week, the odds of a Friday rate cut will increase. USD/CNH is flirting with 6.4000, although further progress lower is likely to be limited by the PBOC until China returns on Thursday. The Singapore Dollar and Malaysian Ringgit are 0.20% higher.

USD/JPY is bucking the trend, with the cross highly sensitive to US/Japan interest rate differentials. USD/JPY has risen to its 200-day moving average (DMA) at 105.60 this morning and looks set for further gains if US yields remain firm this evening. 

USD/JPY aside, firm US yields are unlikely to upset the global recovery applecart in the short term, meaning the US Dollar weakness should continue into the New York session this evening. 

US Big Chill boosts oil

The cold weather sweeping the United States down to Texas has caused rolling power blackouts, a massive spike in electricity spot prices, and taken nearly 1 million barrels per day of production offline, along with refining capacity. On the margins, all of that continues to support oil prices with the Brent crude futures curve in strong backwardation now.

Oil futures on Brent crude and WTI finished around 1,0% higher overnight, although both spiked higher intra-day. Oil has continued moving higher again this morning in Asia. Brent crude has risen 0.60% to $63.65 a barrel, and WTI has edged 0.30% higher to $60.30 a barrel.

Although the technical indicators are screaming that a downward correction is imminent to flush out recent speculative longs, the United States' weather situation will likely continue to offset that. In the bigger picture, the backwardation in the Brent futures markets means that even a violent downward correction is likely to be short-lived.

Until the weather moderates in the United States, though, oil is a buy on dips in the short-term.

Gold remains side-lined

With all the attention on Platinum, gold has fallen off investors’ radars for now. Perhaps investors have been burned too often on the inflation and dollar debasement trade with gold and have let their feet do the talking. The rise in the US 30-year yield over 2.0% on Friday is also giving gold bulls pause for thought.

The net result is that gold remains marooned near its two-month lows and has failed to pick up any sort of support from a weaker US Dollar in recent sessions. Gold edged lower by 0.30% to $1819.00 an ounce overnight but has recouped those losses this morning, rising 0.40% to $1825.00 an ounce.

Hong Kong buyers, returning from holiday, may have given gold some support, and it should still find willing buyers on any drop to $1800.00 an ounce. The price action is unconvincing though with gold looking unlikely to recapture its 50 and 200-DMA's, both at $1856.00 an ounce. Gold will still face resistance beyond that level at its 100-DMA at 1869.00 an ounce. Support is found at $1800.00 followed by $1783.00 an ounce, its February low. 

As stated, gold's price action is unconvincing, and it seems destined to aimlessly trade in a $1800.00 to $1850.00 an ounce range this week. Gold's must hold support remains at $1760.00 an ounce. Failure signals a much deeper correction lower is on the cards.