Asian Open: Commodities weigh on commodity FX, ASX set to mean revert?

Monday US cash market close:

• The Dow Jones Industrial rose 233.09 points (0.27%) to close at 34,955.89
• The S&P 500 index rose 32.46 points (2.51%) to close at 34,058.75
• The Nasdaq 100 index rose 233.094 points (1.58%) to close at 14,987.40

Asian futures:

• Australia's ASX 200 futures are down 0 points (-0.07%), the cash market is currently estimated to open at 7,412.40
• Japan's Nikkei 225 futures are up 310 points (1.12%), the cash market is currently estimated to open at 28,253.89
• Hong Kong's Hang Seng futures are up 48 points (0.22%), the cash market is currently estimated to open at 21,732.97
• China's A50 Index futures are up 59 points (0.44%), the cash market is currently estimated to open at 13,479.67

Wall Street continued to climb despite higher interest rates. Yet dwindling volume with higher prices suggests the rally could be related to short covering as opposed to the initiation of fresh bullish bets. The S&P 500 is not less than a day’s trade from out 4600 target. Tech stocks led the advance and the Nasdaq 100 rose 1.6% to close just shy of 15,000.

ASX 200:

The ASX 200 is grinding higher but a bit of mean reversion almost seems inevitable. Yesterday’s bearish pinbar closed within the upper keltner band following a failed break above it earlier in the session. And half of Friday’s bullish session was the upper wick, which ultimately shows a change in mind at the high of the day. Whether that merits a countertrend trade is up for debate, but we would urge caution at these levels for bulls. And there would be nothing wrong with stepping aside and waiting to see if mean reversion kicks in, then seeking fresh longs around support zones such as 7340/58.

ASX 200: 7412.4 (0.08%), 28 March 2022

• Materials (1.29%) was the strongest sector and Info Tech (-2.67%) was the weakest
• 4 out of the 11 sectors closed higher
• 7 out of the 11 sectors closed lower
• 4 out of the 11 sectors outperformed the index
• 79 (39.50%) stocks advanced, 110 (55.00%) stocks declined

Outperformers:

• +7.04% - APM Human Services International Ltd (APM.AX)
• +6.58% - Zimplats Holdings Ltd (ZIM.AX)
• +3.95% - AVZ Minerals Ltd (AVZ.AX)

Underperformers:

• -6.02% - Paladin Energy Ltd (PDN.AX)
• -5.35% - Lake Resources NL (LKE.AX)
• -5.16% - Xero Ltd (XRO.AX)

Gold-demand dented ahead of peace talks

Currently down around -2%, its has been gold’s worst day in two weeks. Safe-haven demand has taken a knock ahead of peace talks which will be the first in two weeks. And it is worth noting that gold hit a low two weeks ago when it became apparent that peace talks did not live up to expectations. Given that Putin seems unwilling to compromise to end the war, we may find gold hits bid again if peace talks fail to live up to their name. Prices are holding above the June 2021 high of 1916 and it remains a key level to watch today. A daily close below 1900 would be constructive for a bear case.

WTI falls to a 5-day low

Oil prices fell over -8% yesterday during its worst day in 13. And that day would take some beating, given prices plunged up to -22% in a single session. And such levels of volatility may help explain why net-long exposure on WTI futures has fallen for a third week as it wreaks havoc on portfolios which just seek nice and steady returns.

BOE and BOJ send their currencies lower

The yen continued to fall in spectacular fashion after the BOJ announced they’ll buy an “unlimited” amount of bonds to maintain their yield curve control. This only further widened yield differentials and allowed USD/JPY to rise above 123 to a fresh 6-year high. It seems only a matter of time before we hear thinly veiled threats of FX intervention fore the yen.

The British pound was lower against the euro and US dollar as BOE governor reiterated their less-hawkish stance presented at their last meeting. GBP/USD fell to an 8-day low and suggests a corrective high was seen on Wednesday. EUR/GBP also broke above Friday’s bearish hammer which has invalidated our bearish bias outlined in Friday’s and yesterday’s report.

Weak commodity markets weighed on commodity FX but, in particular, the New Zealand dollar. NZD/USD fell over -1.1% during its worst session in a month. AUD/NZD had its most bullish day in two-moths and broke above key resistance to touch a 1-year high. We expect dips above 1.0812 to be bought, in line with its dominant trend.

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