Volatility Remains Muted

Financial markets remained eerily muted overnight, trading mostly sideways and leaving me asking myself, “Is September the new May?” A lack of tier-1 data is partially to blame as the street remains in limbo, torn over uncertainty about the Fed taper and its implications to juicy valuations everywhere, the delta-variant, inflation, uninspiring data from China and whether the global recovery is becoming more k-shaped than K-SHAPED.

That’s not to say there hasn’t been intra-day volatility. Another Fed official added their name to the tapering roster overnight, pushing the US dollar higher, although the rally quickly fizzled out. Oil prices moved higher as OPEC raised 2022 consumption forecasts above pre-pandemic levels. Stocks in the US finally attracted some dip-buyers after several slightly negative sessions.

If everything else is quiet, we can always rely on cryptos to provide some amusement. Litecoin, (whatever that is) spiked over 30% to nearly USD 240.00 of fiat currency after a fake press release saying Walmart would accept it. Walmart quickly denied any such thing leaving a tier-1 news outlet or two with digital egg on their face and some questions to be asked by management. Litecoin dragged the rest of the crypto “asset” space higher on the news before the pump and dump, I mean rally, because digital assets are becoming mainstream, don’t you know, fizzled out, and bitcoin tanked. Mainstream financial assets, um….check, 30.0% intra-day move up and down, errrrrrrrrrrr check.

Markets eye US inflation

Most eyes appear to be on the US inflation data tonight, with Headline Inflation MOM expected at 0.40% and Core Inflation MoM at 0.30%. Nobody was talking about tapering and inflation after the disastrous Non-Farm Payrolls two weeks ago; the fact that markets suddenly have a bee in their bonnet now probably tells you how quiet it is. With markets back on inflation and tapering watch, the path of least resistance is higher prints from the data. In that circumstance, I expect the US dollar to spike, US yields to rise, and equities to probably have a bad day at the office. But given the lack of momentum anywhere at the moment, I’m not sure it will last. The biggest casualty could be gold, which has been hovering on borrowed time at USD 1800.00 an ounce. Ironic, really, when it’s supposed to be an inflation hedge. I have long since concluded that gold does hedge inflation, but only Latin American-style inflation. We’re not there yet.

Today in Asia, Australian NAB Business Confidence tumbled to -5, showing the effects of the extended lockdowns in Q3 in New South Wales and Victoria. However, the House Price Index leapt by 6.70% QoQ for Q2. The result is a nil-all draw for financial markets, and I wouldn’t bet against a rapid rebound once restrictions are eased in the lucky country.

I noted with amusement that the Australian Prime Minister will once again be escaping from Alcatraz/Australia next week, on another junket, I mean essential diplomatic mission, to the United States to meet President Biden. That is despite locking his overseas-based citizens out of the country and locking his domiciled citizens in the country. Hopefully, no large forest fires break out in Australia while he is away, explaining to Joe the nature of his unhealthily close bromance with former President Trump, or another extended holiday to Hawaii beckons.

Japan’s Industrial Production and China FDI (YTD) are released this afternoon. Neither is likely to seriously move the dial with Japan markets myopically focused on post-Suga stimulus hopes and China releasing a bumper set of data tomorrow. That will be Asia’s highlight for the week. India WPI could see some jitters in onshore equities if the print comes in well north of 11.0%.

Whether US inflation impacts or not, we will probably see this price action continue until next week’s FOMC outlook. I would be happy to be wrong, though.