While nations worldwide celebrate
The holiday Marxists made great
Most markets are closed
With traders disposed
To twiddle their thumbs and just wait
Almost every market in both Asia and Europe was closed last night and this morning as the May Day holiday, which while it became a labor celebration in the late 1800’s was actually a pagan ritual in ancient times, coincides with the Golden Week holidays in most of Asia. Yes, US markets are open, and so are UK markets, but that’s pretty much it.
The biggest market news, I would argue, was the BOJ intervention that we saw early yesterday morning, and then, apparently, again during the session. Bloomberg calculated they spent ¥5.4 trillion in their efforts, a cool $35 billion or so. As you can see from the chart below, it did look like there might have been a second, smaller wave this morning, but there is no confirmation of that happening. The second sharp decline could simply be an order in thin holiday markets.
Source: tradingeconomics.com
Of course, the Japanese intervening in the FX markets is not that newsworthy in the big picture, they have done so many times. What was much more interesting was the fact that they ostensibly intervened in the oil market as well, selling futures to help cap the price there. While there are many market participants who decry official intervention in markets, and I understand their concerns, long ago I recognized that governments, by the very fact that they make the rules, are going to do what they want. And while some will claim this was a sop to President Trump to help keep energy prices down, it helps the Japanese economy as well. Japan has been negatively impacted to a much greater degree than the US by high oil prices.
Source: tradingeconomics.com
My final thought on this subject is that it is likely to be a huge win for the Japanese as well, shorting oil at $108/bbl, or whatever their price is will be seen as genius when the end game plays out and oil prices tumble due to massive supplies becoming available.
But really, it is hard to look around and see much more than that. While there is still some discussion of Powell’s decision to remain on the FOMC after his chairmanship ends, I don’t think the market cares all that much anymore as all eyes are now on Mr Warsh to see how he navigates things.
Otherwise, every other story is clickbait and largely unrelated to financial markets today. Rather, it is a good day to play golf, or sit outside and read a book, at least in NJ where it is sunny and heading to 65 degrees.
So, let’s do a quick recap of the few things that did happen overnight. Apple reported strong earnings last night which helped confirm the new record highs in US equity markets, at least in the S&P 500, and helped all US markets to a strong session yesterday. This morning, though, the NASDAQ futures are pointing slightly lower, -0.2%, as I type at 7:15 although the other major indices are in the green. Overnight saw Tokyo (+0.4%) rally a bit as did Australia (+0.7%) and New Zealand (+1.0%), but they were the only markets open. The rest of Asia was on holiday. In Europe, only the UK (-0.5%) is open today with a lackluster performance on weaker banking profits and forecasts.
In the bond market, Treasury yields (+2bps) have moved a bit higher as have UK gilt yields (+2bps) with the rest of Europe closed. One of the interesting things about the bond market is the fact that US economic activity continues to prove remarkably resilient as yesterday’s data showed strong Personal Income and Spending data (0.6% and 0.9% respectively), with GDP growing 2.0% and Initial Claims falling to 189K, its lowest print since 1968! Meanwhile US energy exports have been growing to record levels, and the US economy is benefitting massively from the relative abundance of energy available here, especially with NatGas prices still one-sixth their price in Europe. I must admit it doesn’t feel like the data points toward the need to cut rates.
Turning to commodities, oil (-0.6%) has not been able to reverse the impact of the Japanese intervention yet as all eyes remain on Iran to see if the blockade will force them to concede soon. As well, the fact that the UAE has left OPEC, the 4th nation to do so in the past seven years, is an indication that OPEC has lost virtually all its pricing power. I remain medium term and longer term bearish on oil as the political constraints fall away with the war just accelerating that process. As to the metals markets, after a nice rally yesterday, gold (-1.0%) is backing off a bit while silver and copper are essentially unchanged.
Finally, the FX markets are also extremely quiet overall once you move away from the yen, which today is also little changed from yesterday’s closing level. In fact, the entire market has only moved +/-0.25% or less from yesterday. There is no story here.
And in fact, there is no story anywhere today. ISM Manufacturing (exp 53.0) and Prices Paid (80.0) are on the docket and that’s it. No speeches, and quite frankly I expect very little price action overall as most trading desks will take my advice and leave early.
Good luck and good weekend
Adf
fxpoetry 