Asian Open: Erdogan – hold my lira and watch this

Asian Futures:

• Australia's ASX 200 futures are down -18 points (-0.25%), the cash market is currently estimated to open at 7,274.20
• Japan's Nikkei 225 futures are up 310 points (1.11%), the cash market is currently estimated to open at 28,247.81
• Hong Kong's Hang Seng futures are down -1 points (0%), the cash market is currently estimated to open at 22,743.86
• China's A50 Index futures are up 59 points (0.37%), the cash market is currently estimated to open at 15,802.50

UK and Europe:

• UK's FTSE 100 index fell -71.89 points (-0.99%) to close at 7,198.03
• Europe'sEuro STOXX 50 index fell -54.22 points (-1.3%) to close at 4,107.13
• Germany's DAX index fell -292.02 points (-1.88%) to close at 15,239.67
• France's CAC 40 index fell -56.53 points (-0.82%) to close at 6,870.10

Monday US Close:

• The Dow Jones Industrial fell -29.79 points (-0.08%) to close at 35,897.64
• The S&P 500 index fell -52.62 points (-1.14%) to close at 4,568.02
• The Nasdaq 100 index fell -173.818 points (-1.1%) to close at 15,627.64

In Turkey, Inflation sits around 21% and is forecast to rise to around 30% in 2022. Regardless, Erdogan has continued to defend his rate-cut policy in a highly inflationary environment, and on Sunday he said “We’re lowering interest rates. Don’t expect anything else form me”. This resulted in the lira initially falling to a new record low yesterday. However, once Erdogan said the government will implement a new programme to protect deposits from exchange rate movements (without providing ay details as to how) the lira posted its largest single-day gain since it free-floated in 2001. USD/TRY fell around -17.4% on a closing basis, whilst its daily high to low range saw an incredible -37.3% decline.

Lira volatility and Omicron-fuelled concerns weighed on sentiment

It was a sea of red on Wall Street which closed lower for a third consecutive day amidst rising levels of volatility. The combination of Omicron concerns, another hurdle for Biden’s “build back better” bill and of course the lira’s volatility all contributed to the equity sell-off. US futures simply extended their losses which began in early Asia yesterday, with the E-min S&P 500 futures contract falling over 2% and nearing its MTD low. The Nasdaq 100 and S&P 500 were down around -1.1%, and the Russell 200 fell -2.7%. Financial and materials sectors were the worst hit on the S&P.

USD/CAD closed at a 1-year high

With weaker oil prices and the US dollar catching a risk-off bid, USD/CAD was allowed to continue north and close to its highest levels since December 2020. 1.30 is now less than a day’s trade away looking at its ATR (average true range) although its next level of resistance is around 1.2950, which has acted as both support and resistance since December 2019.

Yet with commodities lower in general it also saw NZD/USD re-test its 13-month low and AUD/USD dip temporarily to a 9-day low. As the yen also took safe-haven inflows USD/JPY closed effectively flat, whilst USD/CHF fell -0.3% as CHF also took in safety flows. Of the two charts in yesterday’s European report, GBP/CHF traded more in line with our bias with a clear break (and daily close) beneath the symmetrical triangle. Whilst GBP/JPY was also lower, it recouped most of the day’s earlier losses to close with a bullish pinbar.

EUR/NZD breaks out of compression

A strong bullish trend has emerged on EUR/NZD since its prior downtrend failed to test 1.6000. Since then, it broke above trend resistance during a strong rebound before trading sideways in a choppy range. Yet the Doji which failed to close beneath 1.6600 shows demand and the lows ahead of a daily close above trend resistance. Next resistance is at 1.6914, a break above which brings 1.7000 and 1.7100 into focus.

Commodities broadly lower during risk-off trade

Oil prices fell just under -6% overnight before recouping Around half of the day’s initial losses. WTI remains below $70 an formed a bullish hammer on the daily chart, yet the $70 level likely remains a pivotal level that appeals to bears whilst prices remain beneath it.

The fact that gold failed to attract a safe-haven bid during a risk-off session suggests investors either moved over to cash or had to sell gold to slow the bleeding in their equity portfolios. Still, it fits in with our technical these that it is due a pullback on the daily chart after printing a bearish hammer on Friday which closed just below $1800. Ultimately, we’re looking for a corrective low to form somewhere within Thursday’s bullish range.

ASX 200 Market Internals:

ASX 200: 7292.2 (-0.16%), 20 December 2021

• Healthcare (0.83%) was the strongest sector and Energy (-3.39%) was the weakest
• 8 out of the 11 sectors closed higher
• 8 out of the 11 sectors outperformed the index
• 84 (42.00%) stocks advanced, 107 (53.50%) stocks declined
• 58% of stocks closed above their 200-day average
• 84% of stocks closed above their 50-day average
• 48% of stocks closed above their 20-day average

Outperformers:

• + 4.09%-BlueScope Steel Ltd(BSL.AX)
• + 3.72%-Viva Energy Group Ltd(VEA.AX)
• + 3.42%-Clinuvel Pharmaceuticals Ltd(CUV.AX)

Underperformers:

• - 32.9%-Magellan Financial Group Ltd (MFG.AX)
• - 13.3%-CIMIC Group Ltd (CIM.AX)
• - 9.37%-Nanosonics Ltd (NAN.AX)

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