The US returned to work overnight after a Memorial Day break that looked more spring break than social distancing. Wall Street quickly achieved escape velocity, powered by the peak virus trade, with equities and oil reaching for space yet again.

This morning, headlines have been dominated by Hong Kong concerns, with the legislature considering a controversial national anthem law today, following more protests over the weekend. We are yet to see the wording of the security law Beijing will be imposing on Hong Kong, but US politicians are already making muted threats of retaliation, no matter what is passed in the end.

No matter how China and Hong Kong CEO Carrie Lam dress it up, the passage of the security legislation from Beijing will have consequences for the beleaguered SAR and will further darken relations between the US and China. Regarding the bill being debated today about disrespecting the national anthem, China does have a point. Hong Kong is part of China, something we all seem to forget these days.

Global recovery hopes though, are trumping trade and regional tensions for now, following Wall Street’s strong performance overnight, Asia stock markets are modestly higher today. For now, trade and geopolitical blips, appear to be dips to buy into the rally, rather than a sea change in sentiment. That can only come if second waves of COVID-19 outbreaks sweeps developed countries, or vaccine disappointments mount up.

Far more exciting today is the return to space by US astronauts on an American built rocket. Space-X’s Dragon capsule launches to the International Space Station later today carrying two US astronauts. Aside from wishing them all the best, in a dark world, it is nice to see the spirit of human innovation alive and well.

Back on Earth, the fiscal stimulus frenzy by governments around the world continues unabated, highlighting just how disconnected capital markets have become from the situation on the ground. Singapore announced SGD 30 bio+ of additional stimulus via its 4th budget this year, and Japan has been outlining their latest package this morning. By my reckoning Japans extra budgets now total some $2 trillion, and Singapore SGD 100 billion. Long after COVID-19 is a memory, the fiscal funding requirements of the bloated balance sheets of governments around the world will compete with private capital. That, though, will be a story for another day; let’s hope we get a few years inflation to deflate the whole thing away.

The data calendar is light around the world over the next 24 hours. This morning, China Industrial Profits fell by 27.40% in April, a slight improvement over the 36.70% fall in March, hinting that China’s recovery is still on track. That will leave markets headline-driven in the shorter term, most likely coming from Hong Kong.

Asian equities are mixed as Wall Street plays catch-up.

Wall Street returned to work yesterday and played catch-up with the rest of the world, equities powering higher in a positive overnight session. Vaccine hopes and the peak-virus economic recovery trade saw the S&P 500 rise 1.23%, the NASDAQ edged 0.17% higher, with the Dow Jones outperforming, leaping 2.17%. A measure of just how far equities have come is that the S&P 500 has now recovered around 70% of its losses. It is currently testing its 200-day moving average at 3005.00, with further gains to 3200.00 not out of the question. As counterintuitive as it may seem, given the state of the world, resistance is futile for now.

With the US in catch-up mode, Asia is struggling for direction this morning, with Hong Kong and trade nerves weighing on sentiment. Given the momentum of the peak virus trade globally though, any dips are likely to be shallow.

The Nikkei 225 is 0.20% higher, and the Kospi is flat. Mainland China and Hong Kong exchanges are weighed down by trade and political tensions ahead of a National Anthem Bill passing through Hong Kong’s legislature today and fears over the new Beijing security laws. The Hang Seng has fallen 0.75%, with the Shanghai Composite down 0.35% and the CSI 300 lower by 0.55%.

Australia and New Zealand markets are concentrating on the bigger recovery picture, following strong rallies by their currencies overnight. The ASX 200 and NZD 50 are both 0.40% higher this morning.

The rotation out of US Dollars gathers pace.

The global recovery trade and the return of Wall Street saw the rotation out of haven US Dollar positioning gather pace overnight. The EUR/USD rose 0.80% to 1.0980, closing above its 100-day moving average and eyeing the 200-day moving average at 1.1010 today. GBP/USD rose an impressive 1.20% to 1.2325 overnight, setting the stage for a test of 1.2400 and potentially, further gains to 1.2600.

Trade-centric commodity currencies though, were the stars of the night. USD/CAD fell 1.50% to 1.3780, breaking two-month support at 1.3855, setting up further gains for the Canadian Dollar. AUDUSD rose by 1.70% to 0.6655, just below its 200-day moving average at 0.6660. A daily close above 0.6660 sets up further technical gains to the 0.6800 regions initially. NZD/USD rose 1.60% to 0.6200, just below its 100-day moving average. Like the AUD/USD, the Kiwi now appears set for higher levels.

Much the same trend was seen across the emerging markets space in general, with investors rotating into more risk-seeking positioning. The US Dollar weakness was also reflected in today’s PBOC CNY fix. The USD/CNY being set at 7.1092 versus 7.1293 yesterday.

Overall, currency markets appear to be begrudgingly awakening from their long slumber, unable to ignore the rallies in other asset markets any longer. As such, the US Dollar is likely to remain heavy for the rest of the week at least.

Oil consolidates its recent gains.

Oil had a quiet overnight session, content to finish modestly higher as both Brent crude and WTI consolidated their recent gains. Brent crude rose 1.35% to $36.10 a barrel. WTI rose 0.90% to $34.15 a barrel. Both contracts are unchanged in moribund Asian trading today.

Brent crude continues to eye the enormous gap on its charts between $40.00 and $45.00 a barrel, with the $40.00 regions initial resistance. A close above $40.00 a barrel sets up a technical rally to close that gap. WTI meanwhile has its 100-day moving average at $36.55 as an initial target.

With a 100% beta to global recovery sentiment and the peak-virus trade, oil has few reasons in the near term to see the rally falter. Perhaps the only blot on oil’s copybook is that speculative long positioning appears to be rising just as quickly as the sentiment. As we approach significant daily resistance on both contracts, the chances of short, but aggressive, corrective falls increases.

Gold also suffers as investors look elsewhere.

Sentiment appears to be turning rather quickly for gold, as investors rotate out of safe-haven positioning as national lockdowns end, and COVID-19 vaccine hopes rise. Gold’s technical outlook is further clouded by the large amounts of speculative long positioning added as it tested monthly resistance at $1750.00.

Gold fell by 1.05% overnight to $1611.00 an ounce, with the $1675.00 an ounce region the next layer of support. With currency markets finally climbing on board the peak-virus rally seen in equities and energy, the wolves would appear to be circling gold also.

Gold’s fundamentals still suggest that longer-term, it will yet again make new highs against a backdrop of enormous monetary easing by the world’s central banks, and the possible return of inflation in the Western world after a 20-year hiatus. That though. is a story for another day in the future. In the near-term, gold long positions look likely to suffer more pain.

Asia has seen gold rally initially but quickly retreat to unchanged levels from the New York close. That implies that there are plenty of nervous longs waiting to sell into any rally.