Rotational Spin

US markets paused for breath overnight, with Wall Street easing slightly after a frenzied Monday session. Rotational spin was the theme of the day, and yesterday’s lucky recipient was the European Union, with markets delivering the author a slap in the face after yesterday’s note. Having driven US markets to near-record highs, investors seized upon news that the EU expects to have vaccinated 70% of its population by the end of July to pile into a Euro-recovery play. That drove French and German markets to record closes with the euro rallying hard versus the greenback.

US yields drag dollar lower

US yields fell overnight despite US JOLTS Job Openings for February outperforming, climbing to nearly 7.40 million jobs. Although backwards-looking in the context of the dynamism of the past 12 months, when one adds in the ISM Services PMI and Non-Farm Payroll prints of recent days, and vaccinations becoming available to any adult American from mid-April, US data seems set to put the pedal to the metal.

It is hard to imagine that that is fully “priced in” by markets, despite the daily spin, and US yields may only be resting before moving higher again. US dollar weakness may, therefore, only be temporary. This week, though, the rotational, global recovery army has reasserted control, and I shall not fight them.

It is a relatively quiet day on the data front for Asia, which will likely content itself with joining Europe’s rotational recovery party, having declined to join the madness of Wall Street’s manic Monday. Australian Market Services PMI outperformed, climbed to 55.5. With the RBA on hold and ultra-dovish still yesterday, the data-beats by the lucky country should keep on coming. That, along with the imminent commencement of the long-awaited Australia-New Zealand travel bubble, should keep the Australian and New Zealand dollars purring along after being lifted overnight as bellwethers to global risk sentiment.

Asia’s highlight will be the latest Reserve Bank of India rate decision this afternoon. Despite the resurgence of Covid-19 threatening the Indian recovery, the RBI will remain unchanged at 4.0%, although a hike of the Cash Reserve Ratio is probably off the table. With inflation near 5.0%, and lockdowns likely to nudge food inflation higher now, the RBI has little room to move in this stagflationary environment. The Indian rupee was one of the few currencies to weaken overnight, but an unchanged RBI, along with lower oil prices, should be supportive at the margins, as it will be for local equities.

Looking ahead, the US Trade Balance will be of marginal interest. The week’s highlights will be the FOMC Minutes released in the wee hours of Thursday Asian time, with markets looking for divergence amongst the governors regarding future monetary tightening. That is followed by Federal Reserve Chairman Jerome Powell making a speech at midnight on Thursday/Friday SGT. As ever, the street will be hanging off every word, looking for the slightest hint that Mr Powell is wavering on his ultra-dovish forever commitments. Expect bond prices and equities to fall if one misplaced word emerges.

For now, though, global recovery risk sentiment rules the waves. Recovery rotational spin will likely continue to increase until investors get dizzy enough to pause.