Intermezzo

Intermezzo
It was a predictable snoozefest in FX overnight as global holiday sessions crimped activity. And adding to the void, there was scant data during European hours which severely nipped action as traders had few if any fundamental guideposts.

But the markets interlude included the usual holiday- liquidity induced mystery move as the dollar went bid at the NY open. But the step was humble and little more than an attempt to trigger some stops in low liquidity market conditions. But all near-term support levels held and the move and quickly retracted as there was no news to support the quickstep sell-off. Chalk it up to the ghosts of presidents past.

Currency markets have remained relatively muted with few if any headlines to sink one’s teeth into but as the markets pivot to Fed speak and the FOMC minutes this week, “deficit mania” is sounding a few decibels lower this morning.But none the less, ongoing concerns about swelling deficit’s and the Feds sequence of interest rate normalisation should be the markets key focus this week and the primary drivers of near-term volatility.
Oil Markets

Oil prices have started the week on a positive note.With risk aversion abating, equity markets have remained guardedly positive. Also, an escalation of middle east tensions on the back of Israeli Prime Minister Benjamin Netanyahu beating the war drums by suggesting that Isreal could act against Iran alone has nudged prices higher. Predictably this warmongering has put the region on a state of readiness fearing a head to head incident and boosted oil prices due to the fear of sizable supply disruptions. Of course, when Isreal comes into the equation it could spark contagion across a region

Also, convincing signals from OPEC and their partners to extend production cuts continues to resonate with investors.

Gold Markets

Gold prices slid lower overnight on a drop in volatility and a slightly stronger dollar. Selling pressure emerged after USD speculative buyers emerged along with some position short covering ahead of the plethora of critical Fed speak and of course the FOMC minutes. But given the late-January Fed meeting was primarily interpreted as Hawkish; the bar is high for the minutes to sound an even more Hawkish note,  but they will still attract the lions share of attention.

Given that the sun seldom shines on a capital hill along with escalating middle east tension, on the first sign of a dollar downdraft gold with ratchet higher.

G-10

The Japanese Yen

Markets are focusing on Friday’s crucial Japan CPI print, and with all the recent chatter about the BoJ extending YCC in perpetuity given the stronger Yen, short-term traders are paring back bearish dollar bets. And with a relative sense of calm in overall volatility,  dollar bears are taking an interlude in holiday thinned-trading conditions

The Euro

Very little buying interest yesterday after Friday’s sell-off so given the lack of demand the Euro could fall to low 1.23  on even minor unexpected hic-up on news flow given thin liquidity conditions. But dips should look attractive for long-term players.

The Malaysian Ringgit

Very quiet trading session to start the week with local trader biding time until the FOMC minutes release. In the meantime, the broader USD sentiment will dictate the pace of play for regional currencies and imparticular the USDJPY which is moving towards 107 which is mildly negative for the MYR

On a favourable note, Oil prices remain robust on the escalation of middle east tension and production cut compliance among OPEC members which should provide support for the MYR.

Don’t go barking up the wrong tree in the Year of the Dog

Don’t go barking up the wrong tree in the Year of the Dog

A predictable wave of profit taking and risk reduction, as is standard form ahead of US long weekends, dominated Friday session leading to USD gains as US  yields pulled back. And while the broader  US dollar negativity continues to seep through capital markets, some traders are suggesting of potential shifts in conviction levels while others believe  Friday to be little more than pre-weekend risk reduction. But one thing that’s clear, even the most prolific purveyors of price action are baffled regarding the breakdown of historical correlations across most asset classes.

One telling feature, however, is long-term investors continue to shun the greenback and this should continue to weigh on near-term sentiment. So no don’t  go barking up the wrong tree in this Year of the Dog, stick to the basics and follow the flow.

By way of the ordinary course of developments, the various market holiday observances might challenge liquidity conditions. Golden Week celebrations continue across Asia through Wednesday, while both the US and Canada take holidays Monday. Still, it could be an actionable week with numerous Fed speakers on tap and the FOMC minutes are sure to liven things up. Keep in mind; March rate hike is all but entirely priced-in so the markets will be keying on forwarding guidance.

As the markets pivot to Fed speak and the FOMC minutes this week, “deficit mania” is sounding a few decibels lower this morning.But none the less, ongoing concerns about swelling deficit’s and the Feds sequence of interest rate normalisation should be the markets key focus this week and the primary drivers of near-term volatility.

And while US Bond yields eased on Friday,  traders see icebergs ahead suggesting Friday’s price action was little more than a reprieve amidst a bear market.

Equity Markets

Equity markets continue climbing the wall of worry despite inflationary fears gaining momentum and Bond Yields moving higher.Eventually, something has to give, but so far investors are betting on corporate earning rather than the shifting macro narratives.

Oil markets 

Oil prices finished modestly higher on Friday to chalk up a weekly gain as prices continue to see-saw between the binary descriptions from OPEC’s ongoing efforts to blow out the worldwide glut against the indications of rising U.S. production.Although Fridays price movements were likely  position sensitive amid USD risk reduction and book squaring ahead of tomorrows Oil contract expiration

We should expect the WTI whipsaw to continue as debate rages between US shale and OPEC, but we’re starting to carve out near-term ranges as longer-term oil bulls remain in dip buying mode with shale oil hedger looking to sell upticks.
Gold Markets

Gold prices eased late Friday as the dollar tentatively lifted off the canvas, despite taking a standing eight count earlier in the session when the DXY hit a three year low. A couple of hours USD short covering is unlikely to change the broader USD negativity, but when coupled with inflationary concerns heightening and a probable follow-up correction in equities markets around the corner, golds haven demand should continue to glitter.

On the physical side of demand, China Lunar New Year has seen few gold bars change hands despite physical premiums easing as futures prices continue to grind higher.

G-10 Currency Markets

Japanese Yen

Although the reappointment of Kuroda and the reshuffle of deputy governors is slightly more dovish BoJ, it is hard to reverse USDJPY downside given that continuous USD weakness could further drag USDJPY into the abyss. With the tables turned upside down on ten year US yield to JPY correlation and the US ” deficit mania. ” likely to return, USDJPY is in a precarious position.

Predictably we heard from Japan as Currency Chief Asakawa that he’s readying the necessary action to prevent “one-sided” currency moves, but with the Buck getting pounded against all major currencies, Japans verbal intentions are falling on deaf ears.
The Euro

The pace of the EURUSD rally post-CPI last week surprised everyone but none the less if not for timely comments( seems always to happen when EUR rallies) from ECB Cœuré, we should have closed closer to the 1.2500 rather than 1.2400 handles. His remarks spooked the markets in pre-weekend risk reduction mode after he suggested policymakers are unanimous in sequence when market positioning was suggesting the Hawks were gaining the upper hand. But at some juncture, the market will ignore this verbal balderdash, and in reality, 1.3000 shouldn’t be unimaginable before long predicated on strong fundamentals, the realisation of more hawkish ECB guidance but also the mechanics of the taper could reverse bond outflows.

Asia FX

Malaysian Ringgit 

External drivers and specifically the broader USD moves will dictate the Ringgit momentum this week with the critical focus on USDJPY 106 level.But on the positive side of the equation, one of the primary headwinds that we considered to be a negative for the Ringgit was higher US yields which typically and historically have supported the USD. But the US interest rate to FX correlation broken, and despite USD bond yields pushing much higher t, the USD continues to sell off.

The markets are still feeling the hangover effect from the Chinese Lunar New Year, and risk appetite is waning and with a plethora of Fed speak along with the FOMC minutes likely to cause an uptick in volatility this week, offshore demand could remain muted. None the less, 106 level USDJPY will be a crucial US dollar sentiment gauge, and if the market pushes through again this week, we could see the Ringgit move to 3.87 and below as traders would then set sights on the critical 3.85 level.

Singapore Dollar

The US CPI fallout was somewhat unusual; triggering moves out of the dollar and into riskier currencies, so the SGD benefited as the CNH rallied hard this week.But  CNH could start to underperform. Let me qualify this next comment as no one, and I mean no one knows what the Pboc are going to do. So we can only make hay from innuendo and strategically placed criticisms from regulators in HK  press. But there seems to be a  pickup in debate onshore about the merits of further RMB appreciation which could dent SGD appeal. But in the mean times, we should enjoy the SGD strength ( not because I get paid in SGD, although that is always a welcome bonus). But there is some real value appeal that has emerged in SGD  ahead of this weeks budget, as a rosier outlook in the statement could be the precursor to monetary tightening.But also appealing to foreign investors is the government will take measures to cover the current operating fiscal deficit gap.

US Bond Auction TIPS the dollar

US Bond Auction TIPS the dollar

A dismal US 30year TIPS auction is weighing on dollar demand as the sagging bid to cover ratio of 2.31 is signalling dwindling investor appetite as inflationary headwinds build. The dollar is lower because no one wants to own US bonds despite the higher yield, knowing the inflationary headwinds will push yields higher and bond prices lower

The market remains nonplussed by the breakdown of FX /Interest rate correlations and while the debate still rages concerning Wednesday dollar sell-off. I think its time to throw textbook economics out the window as well as the so-called interest rate pivot point. G-10 yield differentials are so tiny that traders could care less about differentials as they become increasingly focused on the future outlook of the expanding US deficits and in particular the budget deficit

Another hot inflation reading as PPI showed a substantial gain but provided no bounce to the buck. When real money is taking the dollar to the woodshed and reluctant to own greenbacks in anyway shape or form, it matters little what the Feds are doing or yields for that matter. And by all indications, we could be in the early stages of protracted dollar sell-off.
Equity Markets

Equity investors are in a happy spot as US stock markets carved out their fifth consecutive day of gains. Despite a midday swoon, markets roared back as investors view the uptick in inflation as non-threatening and remain in buy on dip mode as last weeks equity meltdown looks more and more like an illogical outlier than ever.

Oil Markets

After the decent bounce on the back weaker dollar and Khalid al-Falih suggesting no imminent demise of OPEC and non-member compliance. Not unexpected the markets are becoming a bit more position sensitive heading into the weekend. The weaker US dollar has been a significant component driving market sentiment, and with the dollar entering oversold territory at weeks end, we could see short dollar position pared which could negatively impact interday oil prices.

Frankly giving the evolving vital narratives surrounding OPEC compliance vs Shale output I expect the WTI whipsaw to be as active next week as it was this week. But given the overly bearish outlook for the greenback, we may have printed a short-term floor and dips will remain supported.

Gold Markets

There was very little follow through on the much hotter than expected US PPI print which convinced investors to book some profits after gold rallied hard the previous session. A while the weaker USD is underpinning gold prices, the short dollar speculators a bit overextend suggesting the market could pare back US short dollar risk which may temper topside expectations for Gold prices today. Medium-term bullish conviction remains intact given the higher US inflation profile and weaker USD narrative.

Crypto Markets

Bitcoin buyers were back en masse chasing the dream as the fear of missing ( FOMO)out propelled BTC above 10,000. It appears the recent wave or regulatory worries have been tempered as the massive South Korean market could roar back to life as rumours are circulating that Seoul is looking at licencing several exchanges adding a level of credibility and shoring up severely dented investor confidence.
Currency Markets

The Japanese Yen

Talking about FOMO, is there anyone who is not short USDJPY? Of course, “the crowded trade theory” did cross my mind overnight, for second or two, as USDJPY powered back to 106.80 overnight on the Wakatabe headline, before pressing the sell button again. Dovish or not the market cares little about centeral bank policy these days while looking for any and all opportunities to hammer the dollar mercilessly. With very little chance of intervention at these levels, the JPY bulls should continue to have their way near-term.But short-term speculators are a bit stretched so now is not the time to get greedy.Let’s see what fortunes next week brings.

The Euro

It looks like the grind higher is back in fashion, and the upticks have been relentless over the past 24 hours. But unlike the recent test of 1.25 positioning is much lighter so we could punch higher as traders continue moan over not buying the dips to the low 1.22’s

The Malaysian Ringgit

Powerful bullish signals are falling on deaf ears as investors are far and few between due to Chinese Lunar New Year and quite frankly it’s not worth paying the holiday liquidity premiums to put on risk. Very little offshore interest today so expect the market to remain quiet.

A day of calm

A day of calm

Equity markets have begun the week on a somewhat positive not picking up from Friday rebound as bargain hunters have returned on the first sign of stability. I guess if you owned a stock for fundamental reasons seven days ago and its 5 % lower this week, why not add to the portfolio? So the story goes.

While the Vix has pulled back to the 25 zone, it’s very trying to view this weeks stock market bounce anything other than technical correction after critical Global benchmarks had one of the there worst performances in years. However, the market is trying to find a positive equilibrium, and if we can get through this week’s critical US CPI relatively unscathed, then it would most certainly look as if last week was little more than a corrective episode rather then the commencement of a bear market.

None the less, government bond yields have found some stability after yields moved higher, albeit in very thinly traded Bond markets.
But certainly adding to the semblance of calm which has started the week. But concerns abound that the Bond Markets have only begun to factor in both the global reflation trade and burdening supply which could drive US bond yields considerably higher.

Oil  Markets

Ignoring US supply-side concerns, OIl markets attempted to make a half-hearted recovery overnight on little more than an equity market correlated bounce and indeed the weaker USD added to the momentum.

Despite the Oil market exhibiting all the hallmarks of technical trading, toppling from massively overbought conditions to retracing on an equity correlated bounce. But technical momentum or not, with the EIA data around the corner, it’s hard not to overlook their expectations that U.S. crude output may rise to 11 million bpd by the end of the year.

However, global demand remains firm, and despite the shale oil boom the supply tightening narrative remains prevalent with OIL towing the line.

Battle lines are forming in an around the WTI 60.00 bpd level which should make for an exciting market this week.

Gold Markets

Gold prices were supported by a weaker dollar and physical demand ahead of Chinese lunar new year. The equity market carnage has abated, and the waves of cross assets selling to replenish equity margins have temporarily decreased providing a calmer market to re-establish Gold longs. But prices should remain within a range ahead of this week US inflation data as the US CPI will be a monster print for the markets inflation views and could provide a catalyst for Gold to bounce higher.
Currency Markets

The US dollar traded lower as currency traders are analysing the rebounding global equity markets. Lots of noise but little momentum as traders are keying on this week’s US CPI with volumes and liquidity density much lower to start the week.

Japanese Yen

The markets continue to digest the potential FX trading leverage cap for individuals in Japan. Mrs Watanabe was a considerable player in the market( especially for Retail brokers), so we’re keeping a close eye on the developments

As for the Yen, we seem to be at a crossroads in all Asian markets with currency markets barely budging looking for some inflation clarity in Wednesday CPI. The fear is that a higher print will send bond yields sky high and equity markets will tumble once again.

Australian Dollar

A rebound in risk sentiment has seen USD haven hedged unwind and buoyed commodity markets.As such, the Aussie dollar has found some solid footing this morning
Malaysian Ringgit

We’re at a bit of a crossroads this week as the markets are grappling with inflation versus the global growth narrative.

An uptick in inflation will lead to higher yields and will present the most significant headwind for the Ringgit. While the market has priced in 3 US rate hikes for 2018, a sudden uptick in US inflation could quicken the pace of the FED interest rate normalisation and could weigh negatively on regional sentiment.

We expect the market to trade in a tight range ahead of this domestic GDP and US CPI. Both monster data points for the Ringgits near-term fate

This too shall pass.

This too shall pass

It seems anytime I left my desk last week the market was sure to fall apart but after witnessing 25 years + of market corrections, I know storms don’t last forever, and as far as the recent bout of market mayhem is concerned, this too shall pass.

Traders quickly conjectured that the ‘crash’ was mainly due to over-crowded positioning in short equity volatility trades and, therefore, was a relatively isolated event. But this does not mean equity markets are out of the weeds just yet.

With US cash flow models factoring in higher US bond yields, equity markets repricing was always on the cards, but unequivocally the rapidity of the move higher in yields was stifling and stop losses were combatively triggered. And when factored with the unbridled use of leverage in equity positions it likely caused everyone to head for the exits due to cash and margin requirements. The great unknown in the debate is just how much equity froth is based on leverage and to what extent will higher US bond yields squeeze these positions either from a cash position or through asset rotation perspectives.

It was a crazy week for US rate markets, but with powerful US economic signals and interest rates most certainly to rise quicker than expected,  last week tumult could be little more than the start of the equity rollercoaster. If cumulative boost from tax reform and fiscal stimulus nudges GDP outline 1.5% higher over the next six to 9 months how does the Fed possibly stick to their three dot plot projections for 2018?

Bond markets are only in the early stages of buying into the global reflation theme, and increasing inflation expectations are driving nominal yields higher. Last week there was a significant topside move in US yields which suggest we could easily tack on another 30-35 basis points 2’s through 10’s given the US fiscal stimulus backdrop. But even without inflation, global central banks will move rates higher, and this will add to higher yield environment, higher inflation or not.

The Feds seem undeterred from the path of gradual normalisation by the recent market turmoil, and we should not expect a Powell ” Put.” given the economic indicators remain strong. And with FED Dudley chiming in, the recent Stock market volatility is ” no big potatoes.” , just imagine a big potato !!
Oil Markets

U.S. crude oil fell below $59 a barrel for the first time in 2018.Rising US production and a resurgent dollar have stacked pressure on oil prices amid a broad financial market sell-off. And on Friday WTI nosedived after the U.S. rig count rose by 26 rigs in the week through Feb. 9 to a total of 791, supporting the EIA revised production forecast that the US would reach the lofty 11 million bpd by the end of 2018

Also, the possible demise of the OPEC agreement has traders on pins and needles after The head of Russian energy giant Gazprom Neft on Friday said producers could adjust their commitments under the deal as soon as next quarter.

Gold Markets
Without question last week was a stressful week in the Gold markets which saw a little appeal for traditional haven assets as Wall streets sinkhole expanded.

At the moment higher US yields continue to weigh negatively on gold’s appeal over the short term, but the recent market tumult likely has overleveraged equity positions scrambling for margin top-ups, and to a degree, there was cause for some cross-asset unwinds including gold allocations which were probably used to fund margins.

In the more extended run with inflation expectations increasing on the back of US stimulus, this should be a consideration for growing one’s gold portfolio.
At the retail levels, Mainland Gold consumption is rising in preparation for Chinese Lunar New Year holidays, not to mention a last-minute splurge for Valentine’s day should keep retailers busy.

Currency Markets

Currency markets were more or less a mixed bag last week, a potpourri of events but not one convincing driver. And with little to glean from Friday close, currency traders could remain sidelined watching equities markets swings in wonderment at least until this week’s US CPI. Given all this rukus started with an uptick in the wage growth component from this months NFP release; this weeks US inflation data will be a monster of a print.
Japanese Yen

Funding positions continue to unwind which at least in the case of JPY, is having a more significant influence over USDJPY than higher US yields. The reappointment of Kuroda could retrace some speculations on the policy adjustments; the Yen will remain the puppet whose strings are manipulated by equities and fixed income price movements.

Australian Dollar

RBA and SOMP behind us and signalling nor rush to hike for a considerable period given the slight dovish lean in the inflation outlook. The AUD should, therefore, be back trading off risk sentiment, commodity prices and ultimately the underlying USD movements. While the Aussie bounced higher above 78 on positive US equity close on Friday, we should expect commodity currencies trade poor amid the recent volatile market. Rallies will likely remain subdued near-term, so the Aussie should remain vulnerable.

Long Euro short Aussie trade set up should return in vogue over the short term given divergent central bank policy expectations.

Malaysian Ringgit

The market continues to grapple with growth versus the inflation narrative, and as this volatility irons itself out, Asian markets tend to exhibit a higher sensitivity to global fluctuations.

And while the Ringgit is better positioned than regional peers to withstand the recent uptick in Global volatility due to strong Marco foundations and the BNM on the path to interest rate normalisation, The domestic economic landscape will come under intense glare when Q4 GDP is released on Wednesday.

While March a rate hike expectations are low due to the dovish inflation overtones expressed by BNM in January,  but a notable above consensus print on this weeks GDP  will increase the odds of a rate hike later in 2018 and strengthen the Ringgit. ( Consensus is 5.8 )

While oil prices continue to move lower due to US supply concerns, I believe this is more technical driven as dollar index is holding above 90 cents, putting pressure on all commodities. Once this period of excess volatility decreases, the global growth narrative should reassert and commodity prices should rise.

Hawks coming home to roost

Hawks coming home to roost

Equity markets were trounced on the back of Global yields parading to multi-year highs Thursday. Indeed, it was less dovish Fed speak that continued to be the driver, and the BoE provided a hawkish bounty for good measure.

The ruckus in the bond pits these days appears hell-bent on marching towards 3 % 10Year UST yields much quicker than anyone had suspected which suggest equity markets will come under the hammer for some time to come. Yields are becoming the real storyline as a combination of tighter monetary policy and the US burdening deficit leading to more supply, suggests we have crossed a 2.75 % 10Y UST bridge of no return, and the ride could get bumpier for equity investors.

The issue is not so much the 3% level but rather the pace that Bond yields have been rising in the US that is sending the markets into disarray. The rapidity of the moves has caught the markets by surprise, and we are going through the predictable panicked repricing of most asset classes.

Oil Markets

Crude prices continued to tank overnight as the commodity complex has suffered dearly due to the uptick in market volatility. But the toxic combination of rising US output and a stronger US dollar has nullified OPEC production cut momentum.

With the markets factoring in US crude production to continue hitting new record highs through 2018, the supply dynamics suggest a move below $ 60 WTI is in the offing.
Gold Markets
Gold toppled to a five-week low after the Bank of England whispered a sooner and more substantial rate rises after revising their growth and inflation forecast. The quicker than expected shift on Central Bank Monetary Policy outlooks coupled with the rapid increase in US bond yields continues to dampen investor sentiment. However, Gold prices quickly recovered as the equity market drawdowns continue to attract risk off hedges while the Syria Standoff with Turkey is offering support on the geopolitical front.
Currency Markets

The Australian Dollar

The rise in US bond yields has toppled the Aussie dollar and dented risk sentiment as global equity market continues to tumble.

Market volatility is weighing negatively on commodities, add in a dose of dovish RBA rhetoric, and therein lies the heart of the Aussie dollar woes.

Also, the Aussie was trampled on when USDCNH shot up from 6.3050 to 6.3750 as it seems that China is opening up more channels for outflows to slow RMB appreciation. (See below)

The Aussie dollar tends not to flourish in these types of markets.
The $ Bull in the China Shop: Chinese Yuan

The dollar bull was let loose in the China shop yesterday as a confluence of events had trader paring back short US dollar risk from the morning fix.

The fix came in a bit higher than expected which usually causes a bit of a move higher but, it was the article in China Economic Daily that was creating the most noise as the report urges corporates to enhance FX risk management. (Nudge Nudge)
China has also resumed its Qualified Domestic Limited Partnership plan after a two-year halt, granting licenses to about a dozen global money managers that can raise funds in China for overseas investments. While it does not have a massive Foreign Exchange flow impact,  and  more symbolic than anything else,  it is none the less suggestive that the Pboc is less sensitive to capital outflow

Given that positions were skewed short US dollar, the confluence of events had traders covering positions aggressively knowing that liquidity will be sure to dry up the closer we get to Lunar New Year.

The China trade numbers were perceived disappointing ( I have opposite view) which contributed to some currency negativity.

But from any logical perspective, it was hard to ignore the Mainland equity fire sales this week which certainly had a negative bias on currency sentiment

The Malaysian Ringgit

Negative regional currency signals abound.

The rapid repricing higher in US bond yields has taken investors by surprise. Moreover, with US yields looking to push higher, we could be in for a bit more pain before the markets find some solid footing.

Higher US yields are supporting the USD and weighing on global equity sentiment which is hurting overall regional risk appetite.

US record crude production continues to weigh negatively on oil prices.

The proximity of Chinese Lunar New year has traders paring back risk.

The market, at least for now, is hedging against the Fed potentially leaning more hawkish, which is explaining the uptick in USD, US Yields and lower equity markets.

Market Jitters Remain

Market Jitters Remain

US stocks toppled again on Wednesday in choppy and messy fashion after a dispirited US Treasury auction revived concerns about a hawkish Fed, unnerving investors already spooked after the rapid climb in US Treasuries apparently ignited a jump in the Cboe Volatility index.

A deplorable auction with meek demand pushed yields on 10-year US Treasuries to 2.84 percent, up four basis points, with traders now eyeing Monday’s a four-year high of 2.88 percent.

The market is now hedging against the Fed potentially leaning more hawkish which is explaining the uptick in USD and US yields.

There was a glimmer of hope earlier in the NY session that equities markets were finding a happy medium, but the equilibrium shattered as optimism gave way to more selling when Federal Reserve Doves see the inflationary lightbulb flicker.

Fed Evans, who dissented along with Kashkari on the December rate hike, has also embraced Kashkari’s new hawkish tone post-Friday’s earnings data. While his baseline remains a hold in rates until mid-year but with on crucial commonition: “In contrast, suppose inflation picks up more assuredly, as many expect. Then, we still could easily raise rates another three or even four times in 2018 if that were necessary. And I would support such a faster pace if the data point convincingly in this direction.”

Of course, this hawkish Fed discourse has elevated market chatter this morning centring on how the  Trump Administration could react if the USD parades higher on a more hawkish Fed. It certainly makes for exciting international intrigue  to the debate in the wake of comments from ECB member Nowotny who charged that the US Treasury is deliberately putting pressure on the USD

Oil Prices

Oil prices have been getting battered by forces beyond the nodding donkey of late. The weaker narrative has been underpinning prices, but with the market shifting to a more hawkish fed description the US dollar slide has come to a blunt halt is now weighing negatively on oil prices. Notwithstanding the unforeseen disorder in the broader financial system has seeped into the oil markets.

With Oil prices ones WTI fell abruptly after the U.S. government reported crude stockpiles rose by 1.9 million barrels. But its the deluge US production that remains the most significant menace to OPEC production cuts. The bottom line is the US crude production should keep hitting new highs throughout 2018 after reaching an all-time higher of 10.25 m barrels per day. 11’s are not that far away.

Gold Prices

Stronger US dollar and higher US Treasury yields have depressed demand for Gold overnight. And with equities souring and with prices continuing to melt away, gold markets could be susceptible to a stock market rebound.

The shifting Fed narrative that is gathering hawkish following could be the most significant thorn in the Gold Bulls side.

Currency Markets

Japanese Yen

The Yen will be traded like a puppet whose strings are manipulated by equities and fixed income price movements.

Australian Dollar

The risk-off moves from Monday’s equity plunge were enough to liquidate short USD and with continued broad de-risking assignments still being played out. I suspect the Aussie bulls with remain in time out corner until we get back above .7850 and a fraction of risk appetite returns. When you view every possible trade scenario as an ambush, probably best to tread cautiously.
The Malaysian Ringgit

The re-emergence of the Federal Reserve Board Hawks and Oil prices looking very susceptible to ramped up US shale oil production continues to weigh negatively on the MYR.

But indeed, the uptick in market volatility has tamed investors appetite, so bullish signals are far and few between

Plop Plop Fizz Fizz oh what a relief it is

Plop Plop Fizz Fizz oh what a relief it is

A case of turnaround Tuesday or merely the eye of the storm?
What a wild ride the past 48 hours !!  and of course the downward correction in equity market was always on the cards as a combination of multi-year high bond yields, and record highs in US equity markets were foolishly unsustainable. And with interest rates sure to be on the move, equity markets were first to blink. But the voraciousness of the purge is what had many scratching their head, but in reality, in this day of computer-driven algorithmic trading this is not the first nor will it be the last mini flash crash to come.

There was nothing that particularly stood out other than an abundance of inflationary wood chips that formed into combustible markets resulting in the sudden repricing of risk.

But at the end of day bargain hunters reemerged as S&P closed +1.74% with levels marking the area from which Monday’s late NY session sell-off begun.But with so much volatility lingering, equity market will have  lot’s of wood to chop  to restore investors confidence

Adding some calm to the proceedings St. Louis Fed President James Bullard, a non-voting member of the Federal Open Market Committee, attempted to dampen US rate hike euphoria stemming from Friday’s spike in average hourly earnings. He said, “I caution against interpreting good news from labour markets as translating directly into higher inflation.”

OIL

WTI oil prices recovered most of the afternoon losses, rising from $63.45/barrel at the close just shy of 64.0/ barrel in after-hours trading. API weekly crude inventories did not raise as much as forecast.
But near-term sentiment remains tethered to yo-yo strings with equities and the dollar providing the counterweights. Risk aversion does not bode well for oil prices and with all the chatter( including the November EIA report)  about US production ramping up there could be a growing propensity to move lower near-term

Gold

Gold prices hit session lows late Tuesday afternoon as U.S. stocks bounced back up. But with asset rotation from equity to bonds, gold prices did not benefit from this uptick in volatility as investors are erring on the more conservative Bond route given the market volatility. Equity gold hedged unwound in favour a more traditional bond market approach as investors opt to sit out this Volatility ( VIX) driven storm

Far too much volatility in the market and investors across all asset classes remain spooked
Currency Markets

The Japanese Yen

Traditional correlations are finally beginning to assert so we should look for shifting risk sentiment to dominate the forthcoming sessions.

The Euro

EURUSD is entering a period of consolidation in the short term and yesterday certainly matched that argument. But Reuters reports that a final coalition deal is expected at some point late Tuesday in Europe.

The Australian Dollar

The AUD bulls are still licking their wounds after, with the RBA’s dovish twist to guidance feeble retail sales and trade data. However, if you adhere to the Yuan -AUD correlations proxy, one should not exclude the Aussie dollar just yet as the currency is nowhere near down for the count.

The Chinese Yuan

Acting as a haven and rightly so as the CNH remains very resilient to broader US moves. The Pboc 2018 working conference statement has cemented the view that the Mainland is putting more emphasis on opening up Bond markets while promoting the liberalisation of the Yuan. A real win for foreign investors who are finally seeing the barrier to enter China capital markets gradually fall by the wayside.

·

The Malaysian Ringgit

We should not lose sight of the great strides that the Ringgit has made over the past 12 months and while investors confidence will be tested during this sudden uptick in volatility the Ringgit will be more than up for the task.

Malaysia economy remains robust; OIL prices remain firm.With that in mind, Equity and bond markets will continue to attract investors who want exposure in the Ringgit. AS we still hold the view that the Ringgit will be less susceptible to other regional currencies as the BNM could increase interest rates again, Malaysia is the most significant oil exporter, and the central bank welcomes a stronger MYR