The Ringgit remains insulated

Meanwhile, Oanda Corp head of trading for Asia Pacific Stephen Innes said while local trade deficit currencies have been in speculators’ cross-hairs, the ringgit has been relatively insulated on strong terms or trade due to oil exports.

“Brent trading at almost US$80 (RM331.24) per barrel is music to the local government’s ears.

“I think when we look at the ringgit in the context of regional peers, it has survived a lot of turmoil this year from the strong US dollar narrative, higher US interest rates and (the US-China) trade war,” he said, adding that the ringgit has held up quite well even after the 14th General Election.

Although a weaker currency will make servicing external debt more expensive and add weight on budget deficits, higher oil prices are expected to serve as a balance to federal accounts.

“A weaker ringgit is less desirable from an import perspective, but it benefits exporters to a degree. However, for the local capital market to thrive, a stronger currency is much more favourable as it creates a reliable and robust bond market,” Innes said.

He expects the ringgit to appreciate to about RM4-RM4.05 by yearend, should the souring relationship between the US and China improve.

The Malaysian Reserve

 

Asia EM FX under pressure as US -China talks shelved

Sept 24 (Reuters) – Asian currencies were weaker across the
board on Monday as investors faced the prospect of an escalation
in the Sino-U.S. trade conflict after China cancelled upcoming
talks even as the latest round of tariffs take effect.
China cancelled mid-level trade talks with the United
States, the Wall Street Journal reported. With no compromise in
sight, many expect the latest move will only raise the tension
between the world’s two largest economies.

U.S. tariffs on $200 billion worth of Chinese goods and
retaliatory tariffs by Beijing on $60 billion worth of U.S.
products took effect on Monday.
With Beijing’s stance appearing to have hardened, U.S.
President Donald Trump’s threat of tariffs on all remaining $267
billion of Chinese exports to the United States looks more like
becoming a reality.

Several regional central banks are expected to raise their
own rates to defend their respective currencies.
Indonesia’s rupiah weakened 0.3 percent to 14,865 per
dollar ahead of a Bank of Indonesia meeting set for Thursday.
Similarly, the Bangko Sentral ng Pilipinas (BSP) is also
meeting on Thursday to decide rates, with the peso
slipping 0.2 percent to 54.21, lingering around its weakest
level against the dollar since late 2005.
With the Fed rate hike priced in by many, Mizuho and OCBC
bank both predict BSP will raise rates by 50 basis points, while
Bank Indonesia is seen hiking its policy rate 25 basis points.
Stephen Innes, head of trading Asia for Oanda, cautioned the
hawkish plays, “without addressing the real underlying problems
around deficits, hiking interest rates to prop up currency is
like putting a band-aid on a broken leg. Speculators will
continue to target deficit currencies at every opportunity.

Reuters

Oil is is trading higher post Algeria OPEC meeting

Brent crude climbed above $80 a barrel after OPEC and its allies signalled less urgency to boost output despite U.S. pressure to temper prices.

Futures in London rose as much as 1.7 per cent. OPEC and its partners gave a tepid response to President Donald Trump’s demand that rapid action be taken to reduce prices, saying they would boost output only if customers wanted more cargoes. Brent could rise to $100 for the first time since 2014 as the market braces for the loss of Iranian supplies due to U.S. sanctions, according to Mercuria Energy Group Ltd. and Trafigura Group.

Oil has rallied since the lows of August as speculation swirls over whether OPEC and its allies will boost output as the sanctions on the Middle East nation’s exports nears. Still, a full-blown trade war between the U.S. and China could imperil global economic growth that underpins crude demand as the two countries begin a new round of tariffs on each other’s goods.

Oil investors are “trading the weekend news very favourably,” said Stephen Innes, Singapore-based head of Asia Pacific trading with Oanda Corp. “Saudi Arabia and Russia ruled out any expeditious supply increases at the Algeria meeting while decidedly ignoring U.S. President Trump’s call to increase supplies and ease price pressures.

Bloomberg

Gold trades mixed in Asia

(Reuters) – Gold edged lower on Monday as the dollar held firm on news that China has cancelled trade talks with the United States, with the market also eyeing this week’s U.S. Federal Reserve meeting for guidance on future rate hikes.

Investors are awaiting this week’s Federal Reserve meeting, where the U.S. central bank is widely expected to raise benchmark interest rates and shed light on the path for future rate hikes.

“Gold traditionally trades poorly ahead of anticipated Fed hike and the dollar will have up ground,” said Stephen Innes, APAC trading head at OANDA.

Meanwhile, speculators increased their net short position in COMEX gold contracts in the week to Sept. 18, U.S. data showed on Friday.

 

Reuters

Asia shares slide as US-China trade talks shelved

BANGKOK (AP) — Shares have fallen in Asia after China reportedly rebuffed a plan for talks with the U.S. on resolving their dispute over trade and technology. The slow start to the week followed a mixed close Friday on Wall Street, where an afternoon sell-off erased modest gains for the S&P 500 that had the benchmark index on track to eke out its own record high for much of the day.

 

ANALYST’S VIEWPOINT: “The weekend headlines have not been a blessing for ‘risk sentiment,’” Stephen Innes of OANDA said in a commentary. He added, “the optimist in me is siding on ‘this too shall pass,’ but with markets closed in Japan, China and South Korea as a large part of Asia celebrates the Mid-Autumn festival, it impossible to gauge sentiment in these drastically diminished liquidity conditions.”

 

Tampa Bay Times

OANDA Trading Asia markets update

Asia markets update

The weekend headlines have not been a blessing for ‘risk sentiment” and while the optimist in me is siding on this too shall pass. But with markets closed in Japan, China and South Korea as a large part of Asia celebrates the Mid-Autumn festival, it impossible to gauge sentiment in these drastically diminished liquidity conditions.

While Hong Kong markets are trading poorly but it difficult to separate the wheat from the chaff after last Friday the Pboc announced they would issue T-bills via the HKMA in Hong Kong money markets, which implies driving local interest rates higher. But of course, shelving the US-China trade talks is not rated highly for local risk sentiment either, a bit of a double whammy of sorts today for Hong Kong.

However, it was unlikely that either the US or China was going to pull a rabbit out of the hat before the US midterm election anyway. However, traders remain in wait and see mode while treading rather gingerly in today Asia session. But indeed, this discussion will likely continue throughout the 24-hour trading cycle.

But overall, no one is taking anything for granted and certainly won’t underestimate the possibility of the US announcing reviews of further China tariffs at some point in time given the Trump administration ‘modus operandi’ of applying non-stop pressure.

Currencies

More risk-sensitive currencies, especially EM are feeling the pinch from weekend headlines bluster, but liquidity is extremely thin and likely contributing to some outsized moves. For reference, G-10 volumes are around 50 % lower as per EBS data. But what action we are seeing is small AUD selling.

Indian Rupee

Not too surprising the INR back under pressure from rising crude prices and domestic credit wobbles after one of the large Non-Banking Financial Companies missed an interest payment last Friday

Oil Markets

Oil investors are trading the weekend news very favourably, Saudi Arabia and Russia ruled out any expeditious supply increases at the Algeria meeting while decidedly ignoring U.S. President Trump’s call to increase supplies and ease price pressures.
Not a great deal of oil market noise today, but traders are quickly pivoting to US inventories data with some small discussion around reports that Cushing Oklahoma delivery point may have declined further in the week ended September 21. But ultimately all these noises pale in the lead up to November 4 Iran sanctions, which continue to underpin sentiment

OANDA Trading Podcast: BFM 89.9 Kuala Lumpur

Numerous crosscurrents in play

Numerous crosscurrents in play

US equities 

On Friday the Dow and S&P opened and closed again at fresh highs on massive volumes due to options expirations, and while headlines over the weekend suggested that trade talks between both US and China will be shelved until after the US midterm elections, markets will not view this in too much of a negative light. It’s not so unexpected, and frankly, the US administration would be just as happy to keep trade wars out of the headlines ahead of the politically charge midterms where the Whitehouse will need to expend much political energy righting their political ship. But more importantly, the markets were viewing the November G-20 summit as a critical focal point where it’s expected both Ji and Trump will take to the sidelines with the intentions agreeing on a roadmap to settle this trade dispute. Not to mention, backchannels will most likely be open. But make no mistake, this will be a bumpy ride and don’t underestimate the possibility of the US announcing reviews of further China tariffs at some point in time given the Trump administration “modus operandi” of applying non-stop pressure.

Regardless, the astounding closing price action in equities last week, particularly the Shanghai composite and the US Indices suggest the markets are incredibly confident on a US-China trade deal by year-end, more Chinese stimulus to come, and hopefully a stable Yuan.

NAFTA 
On the no less political contentious NAFTA 2 trade talks. Canada is expected to join a NAFTA 2.0 agreement. But the Quebec election falls on Oct 1, and with the Provincial Liberals pulling ahead in the polls every so slightly, it’s debatable how much of a rush the Federal Liberals will be to ink a deal before month end. Especially given the political fallout from any concessions around the dairy industry, as the bulk of Canada’s Milk industry is based in Quebec.

Focus 

Traders will continue to monitor Chinese equities, DXY and copper.

Copper is fantastic leading indicators of risk and the economic cycle. Shanghai copper rose smartly on Friday bolstered by China’s fiscal efforts to bump up demand.

US Yields 

The US 10 yields finished the week above 3.05 % and could be setting the stage for a push higher. Rate differentials are still very much in favour of the USD story. But unlike when US yields rocketed higher in May, the UK and Canadian yields are breaking higher, while Japan is staying the top end of YCCC But more significantly Bunds are trading in the 50 bp region so there’s a bit more yield competition for the dollar to contend.

The US dollar 

Speaking of which, the USD could trade defensively ahead of this weeks FOMC as USD Bulls erring on the side of caution. With 2 US rates hikes priced into the balance 2018 and in the absence of inflation, it’s almost impossible for the Feds to bump up the 2019 curve. So, the markets will end up focusing on shifts in the longball forecast into 2020 which is not the best or brightest of signals for currency traders who tend to view markets in much nearer time horizons. Even if the Feds prod 2020 curve higher, its unclear how much of a USD fillip that shift could deliver given that Chair Jay Powell has contiued to de-emphasise 2020 dots. Unless we get an unexpected shift in the Feds terminal policy range of 2.75-3.00%, not sure the dollar ( X -JPY) goes anywhere but trades within well-worn ranges.

Oil Markets 

Last week oil prices were trading buoyantly on reports Saudis are more than happy with a Brent price above $80 or that OPEC, more generally, is not considering raising output. That was until President Trump castigated OPEC ahead of this weekends Algiers meeting.

However, Saudi Arabia and Russia ruled out any expeditious supply increases at the Algeria meeting while decidedly ignoring U.S. President Trump’s call to increase supplies and easing price pressures. Not wholly unexpected mind you as the markets have been leaning toward December 3 OPEC summit for more formal decisions

WTI is trading the weekend news very favourably, up over 1 % at the NYMEX open and additionally spirited on by reports  of inventories at the Cushing Oklahoma delivery point may have declined further in the week ended September 21.

But bullish sentiment could be tempered somewhat by several reports suggest ing OPEC producers generally agree that oil prices above Brent $80 a barrel would be too high. Which plays into the long-held market axiom that OPEC is looking to stabilise prices within the $70-80 $ sweet spot

Gold Markets 

With risk sentiment soaring there has been very little demand for Gold and when you factor in the fact that Gold traditionally trades poorly ahead of anticipated Fed hike, the USD will have up ground to entice buyer back to the market.

G-10

Japanese Yen

The Yen continues to consolidate but with the BoJ continuing to float the idea of shiting policy for no other reason than to support the beleaguered banking sector after years of 0 % interest rates. These trial balloons could contiued to weight on the top side despite USDJPY getting massive support from the favourable interest rate differentials.

The Euro 

I still think Italy risk is way underpriced and the Eurozone economic recovery is so uneven that the EURUSD could move lower given the US robust US economic story.

EM Asia

Hard to envision anything other the current account ( ca)deficit currencies remain vulnerable while ca surplus countries will contiued fare well.

The Chinese Yuan

China will move towards current account deficit and with interest rates likely to move lower to stimulate the economy the RMB will either trade weaker or remain stable at the at the CNY weakest levels of the current range.

The Malaysian Ringgit

The song remains the same. Positive updraft from global risk sentiment coupled with rising oil prices. But offset by increasing global yields, especially those in the US which lessens the appeal for local bonds.

The Rupee and Rupiah 

As for the regional whipping boys IDR and INR, this a very complicated landscape and surging oil prices will continue to be an outsized problem for both currencies, And despite pledges to fix deficits, there has been no proof in that pudding. Instead, BI and RBI are coming up with creative yet very patchy methods of different interventions like the mandatory conversion for export proceeds in Indonesia, for example, or taking oil demand off the market in India.

Which brings us full circle, to this weeks FOMC, where it’s expected both BI and RBI will raise interest rates to match next week Fed hike. So, their ongoing currency struggles will continue to make headlines. However, without addressing the real underlying problems around deficits, hiking interest rates to prop up currency is like putting a band-aid on a broken leg as speculators will continue to target deficit currencies at every opportunity.

Friday Rupee sell-off was directly related to the impact of the RBI raising interest rates which have reportedly caused a massive corporate default for a shadow lender in the housing sector and triggered a significant sell-off in local equity markets.

Ultimately the consumer pays the piper in any rate hike scenario.

A Cautious FOMC?? : dovish tail risks abound

US Federal Reserve chairman Jerome Powell is expected to reaffirm his cautious approach to monetary policy this week, potentially paving the way for an extended rally in the Australian dollar.

The Aussie has battled back from below US71¢ less than two weeks ago and is now within reach of US73¢, helped by a muted market response to the latest trade tariff moves by the US and China and the return of a semblance of calm to emerging markets.

With the economic party raging, the Federal Reserve is widely expected to drain some more punch from the bowl,” TD economist Leslie Preston said, adding the central bank appears far from done: “We expect the Fed to hike four more times over the next year, placing the fed funds target at a peak level of 3.25 per cent in 2019.”

The challenge for investors, as it is for Fed policymakers, is more nuanced.

“We suspect the FOMC will signal in its statement the need for policy, moving forward, to potentially become more nimble when it comes to rate hikes compared to the current workmanlike (quarterly) pace,” Bank of Montreal deputy chief economist Michael Gregory. “This could mean longer-than-one-meeting pauses or none at all (the latter becomes easier with the advent of pressers after each meeting next year).

“In any event, we suspect the phrase: ‘The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2 per cent objective over the medium term’, might be modified.

The dot plot – or the specific rate forecasts by individual policymakers – is expected to be little changed for both 2019 and 2020.

“With two US rates hikes priced into [the balance of] 2018 and in the absence of inflation, it’s almost impossible for the Fed to bump up the 2019 curve,” OANDA’s Stephen Innes said in a weekend note.

“So, the markets will end up focusing on shifts in the long ball forecast into 2020 which is not the best or brightest of signals for currency traders who tend to view markets in much nearer time horizons,” Mr Innes said.

Australian Financial Review

By Stephen Innes Head of Trading Asia @steveinnes123

Bring on the FOMC!

EM Asia: Next weeks discussions

Please join me on Live on Monday, Sept 24  discussing cross-asset markets 

BFM Radio Kuala Lumpur  7:35 AM SGT  on the Market Watch

938Now 9:00 AM SGT for an extended view  on global markets

France 24 TV at 12:15 SGT for the European Open coverage

Jazz FM London 1:00 PM SGT discussing the Asia markets today

EM Asia: Next weeks discussions

By Stephen Innes Head of Trading Asia @steveinnes123

EM Asia sentiment continues to improve; regional equities were trading very well on a  weaker dollar. ASEAN markets do enjoy a capital inflows bump when the US dollar is broadly weaker.

Bloomberg China Calls Off Trade Talks, Won’t Go to Washington Until After Mid-Terms

China

In addition to the significant headlines risk around the FOMC and trade war, the local discussion will continue centring around Premier Li Keqiang ’s comments on import tax cuts, and that policymakers have no intention to weaponise the Yuan in a trade war.

By cause in effect, his comments appear to have improved investor sentiment, as the Shanghai Composite ended up having its best week since 2016, although market chatter is suggesting Friday afternoon extension was nudged on by intervention to reach that high-water mark and boost investor conviction ahead of the long weekend. Nonetheless, we will leave that discussion for another day on how China market intervention, if right in this instance, does tend to hurt the credibility of their intentions.

But let’s not lose sight of the fact that in the absence of a trade deal or a clear signal that one is about to happen post-November G-20, the policy hawks in the Trump administration will be hell-bent on imposing 25 % tariff on 200 billion if not doubling down to 400 billion.

End of November remains the key, and if no resolution by then, the market will yet again price in a meltdown in Chinese equities and a  strong probability the PBOC would allow the renminbi to weaken substantially. Knowing this, investors may tap the brakes after last weeks astonishing equity market recovery, and FX traders will continue to position long USDCNY, knowing full well where the significant tail risk lies.

INR and IDR 

As for the regional whipping boys IDR and INR, this a very complicated landscape and surging oil prices will continue to be an outsized problem for both currencies, And despite pledges to fix deficits, there has been no proof in that pudding. Instead, BI and RBI are coming up with creative yet very patchy methods of unorthodox interventions like the mandatory conversion for export proceeds in Indonesia, for example, or taking oil demand off the market in India.

Which brings us full circle, to this weeks FOMC where it’s widely expected both BI and RBI will raise interest rates to match next week Fed hike. So, their ongoing currency struggles will continue to make headlines. However, without addressing the real underlying problems around deficits, hiking interest rates to prop up currency is like putting a band-aid on a broken leg as speculators will continue to target deficit currencies at every opportunity.

Friday Rupee sell-off was directly related to the impact of the RBI raising interest rates which have reportedly caused a massive corporate default for a shadow lender in the housing sector and triggered a significant sell-off in local equity markets.

Ultimately the consumer pays the piper in any rate hike scenario.

Please join me on Live on Monday discussing cross-asset markets 

BFM Radio Kuala Lumpur  7:35 AM SGT  on the Market Watch

938Now 9:00 AM SGT for an extended view  on global markets

France 24 TV at 12:15 SGT for the European Open coverage

Jazz FM London 1:00 PM SGT discussing the Asia markets today

Bring on the FOMC !

FOMC 

The FOMC meeting next week has a hike fully priced in so the focus will be on the dot plots and the follow-up presser which has dollar bulls questioning their near-term positions.

The meeting will be overly scrutinised to see if there are any changes in the projections, with new Vice-chair Clarida voting for the first time. Also, Chair Powell will likely be quizzed on Fed Governor Lael Brainard view that US interest will probably need to be made more restrictive in the sense that at some point in the future if the unemployment rate remains low, policy rates should move above neutral and into the restrictive territory.

Dovish tail risk

And herein lies the dovish tail risk which has  USD Bulls erring on the side of caution. With 2 US rates hikes priced into  the rest of 2018 and in the absence of inflation, it’s almost impossible for the  Feds to bump up the 2019 curve. So, the markets will end up focusing on shifts in the longball forecast into 2020 which is not the best or brightest of signals for currency traders who tend to view markets in much nearer time horizons. Even if the Feds prod 2020 curve higher, its unclear how much of a USD fillip that shift could deliver given that Chair Jay Powell has contiued to de-emphasise 2020 dots. Unless we get an unexpected shift in the Feds terminal policy range of 2.75-3.00%, not sure the dollar ( X -JPY) goes anywhere but trades within well-worn ranges.

What else in G-10?

AS for the rest of G10, there will be no shift from RBNZ, but in the wake of the surprisingly strong data of late especially the monster GDP beat, we could see a subtle less dovish change in guidance.

It’s not a busy calendar next week per say but dotted by US PCE and EUR sentiment surveys. Canada delivers a GDP report, but NAFTA talks will continue to overshadow data as yet another NAFTA month-end deadline looms.

Brexit Blues 

It’s back to the Brexit drawing board after EU leaders “Chequers mated “and utterly humiliated May at the Salzburg meeting which sent the Pound tumbling below the 1.3100 before finding some composure. Of course, most believe a deal in some form or another will eventually happen. But in the nub of all this Brexit bluster, UK data has been surging with both CPI and Retail Sales beating expectations, but indeed  Brexit uncertainty has overshadowed.  Next week’s UK GDP data could be another strong point, however, with little to no breakthrough on Brexit likely to happen any time soon, The Bank of England will remain unwavering until clarity on Brexit it offered up so the market will likely look past next weeks UK data.

Great insights from our Senior Markets Analyst in London, Craig Erlam  

Sterling Down on May Brexit Warnings

OANDA Market Insights podcast (episode 32)

Craig reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s big stories: Sterling wobbles on Brexit fears, US/China tariffs tit for tat, Inflation hike against expectations.

China 

China PMI which will be closely monitored. Also, we should expect more trade headlines to come into play as both US and China tease with the idea of resurrecting trade talks.

USD Price Action 

Gauging this weeks price action in the wake of Trump tariff announcement, the markets overwhelming viewed the 10 % on 200 billion tariff levy and the measured responses from China as a smoke signal for further negotiation shortly. So the unwind of global USD hedges ensued as the market just found themselves far too long USD at not such grand levels. But the robust fundamental storyline in the US economy coupled with weak PMI data in Eurozone this week, I don’t think we’ve heard the last from the dollar bulls just yet.

Currencies in focus next week

EUR: a huge disappointment to the bulls with a close below 1.1750. While Fed forward guidance will drive the bus next week, the negative  EU PMI lean could hang like an anvil around the EURO neck.

CNH: It has to be on everyone’s radar especially after this weeks exodus of long USD hedge position on a combination of Trade war de-escalation, comments that mainland will not weaponise the Yuan as a tool in the trade war and offshore funding squeeze on the back Pboc to sell bills in Hong Kong. Despite the correction lower in USDCNH, given that China’s current account surplus is expected to shrink as a result of US tariffs and if the Feds signal clear dot plot sailing or even shift slight higher, CNH could sell off again.

Oil markets

Traders will pay close attention to Sunday headlines from Algiers as OPEC, and cooperating non-OPEC producers will meet on Sunday in Algeria

Likely seeking to appease President Trump, unnamed members of OPEC suggested they would discuss adding 500 K barrels per day, and while it gave cause to book some profit and reduce risk, its highly unlikely anything dealing with supplies will happen before the December 3 OPEC summit.

Despite wire reports suggestions otherwise, most of the oil traders in my circle, and despite the usual OPEC headline noise, think the meeting will be little more than the steering committee review of production and market data.

Please join me on Live on Monday discussing cross-asset markets 

BFM Radio Kuala Lumpur  7:35 AM SGT  on the Market Watch

938Now 9:00 AM SGT for an extended view  on global markets

France 24 TV at 12:15 SGT for the European Open coverage

Jazz FM London 1:00 PM SGT discussing the Asia markets today