BoJ’s new script supports the carry-trade

Tuesday July 31: Five things the markets are talking about

Sovereign government bonds prices have rallied overnight as the Bank of Japan (BoJ) again committed to keep its “ultra-loose” monetary policy intact.

As expected, Japanese policy makers tweaked some policies, but signalled rates to stay low for an “extended period of time.”

In respect to the long-term rates, the BoJ reiterated that it would continue to buy JGB’s to keep their 10-year yield at about +0%, but added that “while doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.”

Elsewhere, global equities have been trading somewhat mixed as corporate earnings reporting continues – all market eyes will be on Apple’s Q2 results today after the close.

From a central bank monetary policy perspective, next up will be the Fed (Aug 1) and the Bank of England (Aug 2). Capital markets will be looking for confirmation that U.S policy makers plan two more interest-rate hikes before year-end, while in the U.K, Governor Carney is expected to hike interest rates by +25 bps despite ongoing Brexit worries.

Commodity prices are under pressure after China’s manufacturing PMI’s fell this month (51.2 vs. 51.5 m/m) as the first-round of U.S tariffs begin to have an impact.

On tap: U.S personal spending and income data for June will be released. On Friday, it’s U.S non-farm payrolls (NFP), which is expected to show a healthy labor market with +193K new jobs, and an unemployment rate slipping back to +3.9%.

1. Stocks mixed results

Global stocks are broadly steady, but mixed overnight, after U.S tech share losses yesterday.

In Japan, the Nikkei share average ended flat, rebounding from a one-week low after the BoJ tweaked its monetary policy settings, but refrained from making any radical moves. The benchmark Nikkei inched up +0.04%, while the broader Topix fell -0.84% as bank shares fell on profit-taking after the rate decision.

Down-under, Aussie shares found support Tuesday, mostly supported by BHP. The S&P/ASX 200 rallied +0.03%, holding atop of its multi-year highs, to close out for a fourth consecutive month of gains. In S. Korea, the Kospi inched higher, closing out the month +0.08% in the ‘black.”

In Hong Kong, the Hang Seng index ended down overnight, following the U.S tech sector lower. At the close of trade, the index was down -0.52%, while the Hang Seng China Enterprises index closed -0.2% lower.

In China, stocks closed higher, aided by gains in real estate and energy firms, while the market response to the country’s manufacturing data has been relatively muted – the data clearly reports a slowdown in economic momentum. The blue-chip CSI300 index ended +0.1% higher, while the Shanghai Composite Index closed +0.3% firmer.

In Europe, regional bourses are trading mixed in a range bound trade, while in the U.S stocks are set to open in the ‘black” (+0.2%).

Indices: Stoxx600 +0.1% at 391.2, FTSE +0.1% at 7711 DAX +0.1% at 12811, CAC-40 flat at 5492, IBEX-35 +0.5% at 9905, FTSE MIB +0.6% at 22080, SMI +0.2% at 9183, S&P 500 Futures +0.2%

2. Oil prices drop on oversupply worries, gold unchanged

Oil prices fell overnight, with Brent futures set for their biggest monthly loss in two-years, as oversupply concerns rose on reports that OPEC’s output rose in July to its highest for 2018.

September Brent crude futures fell -25c, or -0.3% to +$74.72 a barrel after rising nearly +1% yesterday. U.S West Texas Intermediate crude futures (WTI) are down -24c, or -0.3% at +$69.88 a barrel, after rising more than +2% on Monday.

Note: For the month, Brent futures are set to drop -6%, while WTI futures are set to decline -5.8%.

A Thomson Reuters survey showed that OPEC increased production by +70K bpd to +32.64M bpd in July, the most this year – to offset the loss of Iranian supply as U.S sanctions have already started to cut exports from the world’s third-largest producer.

Ahead of the U.S open, gold prices are steady, trading within a tight range as the market adopts a “wait-and-see” approach ahead of the Fed’s two-day monetary policy meeting, commencing today. Spot gold is up about +0.1% at +$1,222.15 an ounce, while U.S gold futures are -0.1% lower.

3. Euro zone bond yields edge up after inflation beats expectations

Eurozone government bond yields are edging higher this morning, after preliminary data showed that inflation was higher than expected in July.

Headline consumer inflation accelerated to +2.1% from +2.0% in June, while core-inflation rose to +1.3% from +1.2% in June.

Germany’s 10-year government Bund yield has backed up to +0.44%, while other euro zone bond yields have come off their lows, rising about +1 bps across the board.

This Thursday, the Bank of England (BoE) is expected to hike +25 bps. However, market expectations are looking for a split vote of perhaps 6-3 in favour of a rate rise – some members are likely to continue favouring waiting to see how the data develops.

Note: The market is pricing in an almost +90% odds for a hike.

Elsewhere, the yield on U.S 10-year notes has declined -2 bps to +2.95%, the lowest in a week, while in the U.K, the 10-year yield has declined -2 bps to +1.343%, the biggest fall in more than a week.

4. Dollar’s mixed results

The yen (¥111.51) is a tad weaker after the BoJ’s policy decision overnight. The bank has stressed a “prolong period of extremely low rates” or in other terms further “policy stimulus” in its first-ever forward guidance. Technically, the statement is encouraging for long-term investors to consider adding to their ‘carry-trade’ positions.

Elsewhere, a plethora of mixed European data (see below) is supporting the EUR (€1.1724). Nevertheless, the pair remains confined to its tight summer trading range. This morning’s mixed data will do little to persuade the ECB to move away from its current stimulus objectives.

5. Eurozone economy slows further

Data this morning showed the eurozone’s economy slowing further in Q2, as exports and business confidence both weakened on trade relations concerns.

Eurostat said that compared with Q1, the eurozone’s GDP was +0.3% higher, the weakest expansion in two-years, and year-over-year, it was +2.1% higher.

Note: The U.S/E.U growth differential is the widest in four-years. Stateside, economic growth was +4.1% q/q.

Consumer confidence is expected to rebound if there is progress in talks to resolve trans-Atlantic tensions.

Higher oil prices are another obstacle. The ECB confirmed last week that it would proceed with plans to end QE in December, but a “lengthening period of weaker growth may make it reluctant to hike rates next year.”

Other data this morning released showed the annual rate of inflation rose to +2.1% in July, further above the ECB’s target and that the unemployment rate across the eurozone was steady at +8.3% in June, but the number of people without work rose slightly for the first time in 12-months.

Forex heatmap

Wall of worry builds around the US tech sector 

Wall of worry builds around the tech sector 

US equity markets continue to absorb Facebook’s swoon which is weighing down FAANG’s ahead of Apple earnings announcement on Tuesday. Indeed the markets heavyweight champions are having a rough day, but US markets pruned much of their losses as bank stocks and surging oil prices boosted producers. But all eyes will remain on NASDAQ as the Wall Street wall of worry continues to build around the tech sector.

Interest rate markets are predictably in flux ahead of the numerous central bank announcements this week with the BOJ tomorrow, the US FOMC on Wednesday and the BOE on Thursday. No one is expecting any rate changes, but as always the statements will be closely analysed for any shifts in policy.

But the US dollar is still suffering a bit of a GDP hangover after squeezing higher vs G-10 peers on whisper numbers that were running exceptionally hot. But in the GDP  aftermath, the USD bears continue to remind that 4.1% print was below consensus but more significantly, core PCE came in below expectations  And while the GDP print keeps the Fed on a path for two more rate hikes in 2018, the markets are not buying in wholeheartedly given the lack of inflationary pressures.

Oil Markets

Oil markets are starting the week on a very positive tone with prices trading bid throughout the NY session as supply concerns are making headlines once again  Both Brent and WTI contracts are seeing strong support after three UK oil fields, Alwyn, Dunbar and Elgin are shutting down due to labour strikes. All the while middle east geopolitical tensions recur as Saudi Arabia continues to halt their shipments via the vital Red Sea shipping lanes as ongoing attacks from Houthi rebels take their toll.

Also, Trump’s auto plan continues to influence prices as the rollback in US efficiency requirements is projected to increase fuel consumption by some 500 K barrels per day.

Gold Markets

The markets are trying to turn bullish on the hope for some type of relief rally, but prices remain entirely at the fate of the US dollar. The Yuan has continued to weaken throughout the day and has pressured prices lower.  It’s taking little to spook gold longs suggesting as the markets remain decidedly bearish ahead of the critical central bank decisions.

Currency Markets

Not making much of current price actions given summertime liquidity feel to FX markets as the subtle ebb and flows are more apt to little more than position driven given the tricky calendar of events in the days ahead. And to complicate matters, month end is approaching with quant signals suggesting USD selling portfolio adjustments.

USDJPY still hovering around 111 ahead of the highly anticipated BoJ policy meeting. And while it’s unlikely the BoJ will lay a summertime hawkish horror story on the markets, there has been enough noise to suggest that something is afoot. And while USDJPY could gap higher on the lack of hawkish inference, but the markets will likely continue to bank on a fall review which should temper upside moves. At this point, the general market consensus is for a downgrade on CPI forecast to 1.5 % from 2 %

USDCAD with WTI surging, its been playing positively into CAD trading sub 1.300 before midday profit-taking set in and WTI traded off intraday highs.

EURUSD: The Euro has been trading firmer today on the back of higher EU Zone yields suggesting we could see a move to the top side of the current ranges.

GBPUSD: Cable has been rangy” but with the lack of Brexit noise Sterling shorts are being pared.

AUDUSD: The Aussie short remains a crowded trade but with month-end dollar selling likely to develop into month end shorts are getting covered.

USDCNH Spot continues to move higher even though the fix was lower than market expectation. There is little news, but the lack of progress on the trade war front coupled with little pushback from the PBoC suggests the USDCNH has room to run higher.

USDMYR: Oil prices have been mildly supportive, but the MYR continues to be weighed down by the weaker Yuan and uncertainty over trade war. But with the plethora of central banks taking the stage this week. The local trader is waiting to take their cues from both BoJ and the FOMC forward guidance.

G7 FX moves look to central banks for direction

Monday July 30: five things the markets are talking about

Stocks begin a new week under pressure, as investors mull over some lofty corporate earnings and a number of key policy meetings.

A host of G10 central banks are on tap to offer their monetary policy decisions – the Bank of Japan (BoJ), Reserve Bank of India (RBI), Bank of England (BoE) and the Federal Open Market Committee (FOMC).

Up until last week, capital markets were not expecting any changes to the BoJ’s policy. Nonetheless, Japanese policy committee are supposedly mulling over some adjustments to policy to help their banking sector – 10-year JGB yields have backed up from +0.035% to +0.10% in anticipation of tomorrow’s announcement.

Elsewhere, the BoE is expected to increase its policy rate by +25 bps even amid Brexit gloom, while the RBI is 50/50 on higher rates. The Fed is expected to leave its fed funds rate unchanged. However, look for any indications that U.S policy makers are shying away from two-more interest-rate hikes before the end of this year.

In currencies, the onshore yuan extended last week’s slump, while the ‘big’ dollar ticked higher alongside U.S Treasury yields as metals decline while crude oil prices advance.

On the fundamental front, it’s a heavy week for economic data with the week ending with Friday’s U.S non-farm payrolls (NFP).

On tap: BoJ monetary policy (July 30/31), CAD GDP, U.S consumer confidence & NZD employment (July 31), Fed monetary policy, GBP manufacturing PMI & AUD Trade balance (Aug 1), BoE monetary policy, U.K inflation report & AUD retail sales (Aug 2), CAD Trade balance & U.S non-farm payroll (NFP) (Aug 3)

1. Stocks see ‘red’

In Japan, stocks closed lower overnight as possible changes this week in the BoJ’s monetary policy weighed on sentiment, while quarterly earnings were also in focus. Japan’s Nikkei share average closed down -0.74%, while the broader Topix fell -0.43%.

Down-under, Australia’s S&P/ASX 200 closed down -0.4% following Friday’s 11-year closing high, with health care down -1.1%. In S. Korea, the Kospi stock index and the won weakened overnight ahead of key central bank meetings and U.S inflation and payrolls data. At close, the index was down -0.06%.

In Hong Kong and China, stock indexes closed weaker overnight, pressured by a slump in healthcare shares. In Hong Kong, the Hang Seng index ended down -0.25%, while the Hang Seng China Enterprises index was unchanged. In China, the blue-chip CSI300 index fell -0.2%, while the Shanghai Composite Index slipped -0.1%.

In Europe, regional bourses trade a tad lower, tracking their Asian counterparts as bond yields rise.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.2% at 391.2, FTSE -0.2% at 7683 DAX – 0.2% at 12831, CAC-40 -0.40% at 5492, IBEX-35 flat at 9870, FTSE MIB -0.1% at 21,932, SMI +0.1% at 9183, S&P 500 Futures -0.1%

2. Oil prices edge higher but trade row caps gains, gold lower

Oil prices are better bid with the U.S benchmark WTI moving higher after a month of declines, but gains remain capped as the fallout from trade tensions weigh on markets.

Brent crude futures rose +13c, or +0.2% to +$74.42 – it rose +1.7% last week, the first gain in four. U.S West Texas Intermediate (WTI) crude futures are up +31c, or +0.5%, at +$69 a barrel. WTI fell -1.3% on Friday.

The U.S economy grew at its fastest pace in nearly four-years in Q2, but trade tensions remain high between U.S and China despite an easing between the U.S and the E.U.

Last Thursday, Saudi Arabia said that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab al-Mandeb after an attack on two oil tankers by Yemen’s Iran-aligned Houthi movement.

Note: An estimated +4.8M bpd of crude oil and refined petroleum products flow through this waterway towards Europe, the U.S and Asia.

According to Baker-Hughes data last week, U.S. energy companies added three oilrigs in the week to July 27, the first time in the past three weeks that drillers have increased activity.

Ahead of the U.S open, gold prices have eased a tad on a former U.S dollar ahead of key central bank meetings and U.S inflation and payrolls data this week. Spot gold is down about -0.3% at +$1,219.70 an ounce. U.S. gold futures are also -0.3% lower at +$1,219 an ounce.

3. Yields back up

Japanese government bond prices fell overnight, with the benchmark 10-year yield touching its highest level in 18-months as the market tries to test the BoJ’s intention ahead tomorrow’s decision.

Higher yields has forced the BoJ to conduct a “special bond buying operation” to stem rising bond yields amid growing expectations that Japanese policy makers could adjust its policy. On Friday the BoJ lowered the yield to +0.10% – still, the 10-year JGB yield rose to as high as +0.11% earlier this morning, in defiance of the BoJ’s apparent defence line.

Note: Some believe that the BoJ could possibly announce it would allow larger moves in the JGB market by loosening its interpretation of its policy target of “around zero percent” in the 10-year yield.

Elsewhere, the yield on 10-year Treasuries rallied +1 bps to +2.96%. In Germany, the 10-year yield decreased -1 bps to +0.40%. In the U.K, the 10-year yield fell -1 bps to +1.282%, the biggest fall in more than a week.

4. Dollar in control

Major currency pairs are trading in a tight range as the markets focus turns to central bank meetings this week.

EUR/USD (€1.1663) is steady as a plethora of German States reports their July CPI data, which for the most part saw the year-over-year above the consensus for the national reading. The ‘single’ unit could not find much traction, despite the 10-year Bund hitting a six-week high near +0.43%.

USD/JPY (¥111.10), again its steady and holding above the psychological ¥111 handle ahead of tomorrow’s BoJ rate decision. Overnight, the BoJ conducted a fixed-rate JGB Bond Purchase operation – an unlimited amount of 5 to 10-year JGB’s at +0.10% (its third operation within the past week).

Elsewhere, the EUR/SEK (€10.2419) fell by -0.6% as Sweden Q2 preliminary GDP beat expectations and kept the timeframe intact for the Riksbank to hike rates around year-end.

5. U.K consumer lending stable in June

U.K data this morning showed that the British consumer borrowing remained broadly stable last month, which would suggest another month of steady growth in household spending.

Bank of England (BoE) data showed banks lent £5.4B to consumers in June, net of repayments, a touch higher than the £5.3B in May.

Borrowing on credit cards and other unsecured forms of lending was flat at £1.6B, while mortgage lending inched higher.

Digging deeper, the number of new home loans approved by lenders in June also rose compared with May, to +65,619.

Note: An uptick in mortgage lending offer signs that potential homeowners may be seeking to finalize their purchases before further hikes in borrowing costs this week.

The BoE is expected to lift its benchmark interest rate to +0.75% (Aug 2).

Forex heatmap

U.S dollar firmer on GDP expectations

Friday July 27: Five things the markets are talking about

Euro stocks have found some traction after a mixed performance overnight in Asia, as investors remain upbeat over the tentative trade truce between the U.S and the E.U.

President Trump and E.C Commission President Juncker agreed, in principle, not to impose new tariffs while the two economies sorted out their differences. The truce comes as Sino-U.S trade relations remain on edge.

Aside from corporate balance sheets, capital markets remains focused on trade and central bank policy – BoJ (July 30), Fed (Aug. 1) & BoE (Aug. 2).

Today’s advanced U.S GDP will be an important print (08:30 am EDT) – Trump and his economic team are convinced that the GDP numbers will be strong.

Trumps advisers have been privately telling associates that GDP growth should rise to +4.3% or +4.4% for Q2. The President is even more optimistic, telling anyone who will listen he expects a +4.8% headline – anything close and the president will be accused of leaking data. The danger for the U.S dollar is a weaker headline print below +4%.

This morning’s U.S data may provide support for the Fed’s tightening path, while in Japan, reports suggest the BoJ is debating ways to reduce the side effects of their yield-curve control policy.

Note: The ECB indicated yesterday that it will stick to its plan to end bond purchases and pledged to keep interest rates unchanged “at least through the summer of 2019.”

1. Stocks mixed results

In Japan, equities closed higher overnight, taking solace from signs of reconciliation between the U.S and Europe over trade issues. The benchmark Nikkei share average hit a one-week closing high and ended the week +0.56% firmer. The broader Topix ended +0.57% higher.

Down-under, the Aussie’s stock benchmark topped early July’s best in notching another eleven-year closing high – the S&P/ASX 200 rose +0.9% as BHP Billiton rose +2.3%. In S. Korea, the Kospi cooled following Thursday’s outperformance, but still rose further, allowing the index to narrowly avoid a sixth-decline in seven-weeks. It rose +0.3%, both today and on the week.

In Hong Kong, stocks ended flat as expectations of more stimuli from Beijing offset worries over a China economic slowdown. The Hang Seng index rose +0.1%, while the China Enterprises Index gained +0.2%.

In China, bourses ended down overnight, as investors remain cautious amid concerns over the Sino-U.S trade friction. The blue-chip CSI300 index ended -0.4% down, while the Shanghai Composite Index closed -0.3% lower.

In Europe, regional bourses are pushing higher, continuing the positive momentum, with largely positive earnings helping fuel sentiment.

U.S stocks are set to open ‘unchanged’.

Indices: Stoxx600 +0.1% at 391.1, FTSE +0.2% at 7681 DAX +0.3% at 12846, CAC-40 +0.0% at 5480, IBEX-35 +0.9% at 9866, FTSE MIB +0.3% at 21,932, SMI +0.1% at 9153, S&P 500 Futures flat

2. Oil markets ease after three days of gains, gold higher

Oil prices are a tad lower in quiet trading after three-days of gains, but took support from Saudi Arabia halting crude transport through a key shipping lane, falling U.S stock levels and easing global trade tensions.

Brent futures are down -5c at +$74.49 a barrel – it’s heading for a near +2% gain this week, the first weekly increase in four. U.S West Texas Intermediate (WTI) futures are -5c lower at +$69.56, after rising nearly +0.5%on Thursday. The contract is heading for a -1.3% weekly loss, a fourth-week of declines.

On Thursday, Saudi Arabia said that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab al-Mandeb after an attack on two oil tankers by Yemen’s Iran-aligned Houthi movement.

Note: An estimated +4.8M bpd of crude oil and refined petroleum products flow through this waterway towards Europe, the U.S and Asia.

This week’s EIA report showed that crude inventories fell -6.1M barrels in the week to July 20, compared with a market expectation for a decrease of -2.3M barrels.

Ahead of the U.S open, gold prices have edged a tad higher overnight as the dollar slipped against G10 pairs ahead of U.S GDP data that could shed light on the pace of rate hikes stateside. Spot gold is up +0.1% at +$1,223.96 an ounce. U.S gold futures, for August delivery are -0.2% lower at +$1,223.20 an ounce.

Note: The ‘yellow’ metal is on track for its third consecutive weekly decline.

3. Euro yields barely move

Eurozone government bond yields have barely moved in this week’s post-ECB meeting environment, even as the central bank stopped short of providing details on reinvestments. The 10-year Bund yield is trading at +0.40%, unchanged on the day.

Note: Later this morning, both France and Spain are scheduled to announce details of their respective auctions for next week.

Stateside, U.S bond prices are a tad weaker, falling after the ECB said it would hold its benchmark interest rate steady and the U.S. reported progress on a revamped Nafta agreement.

The yield on the benchmark 10-year Treasury note is at +2.975%, up from 2.936% Thursday.

Yesterday, Draghi confirmed the ECB’s plans to gradually phase out easy-money policies, but signalled the central bank would likely hold interest rates steady until the end of next summer. The move continues to highlight a widening policy divergence with the Fed.

4. Dollar firmer on GDP expectations

The USD is firmer on high expectations for this morning’s U.S Q2 GDP with some speculation of a +4.4 to +5% print.

After this morning’s release, the markets focus will quickly shift to next week’s BoJ’s policy meeting (July 30/31), which could prove to be significant for the JPY (¥111.19) as some analysts believe that BoJ could opt to raise the 10-year government bond yield target from +0.0% to +0.1%. Nevertheless, the majority believes that Japanese policy makers will keep its policy steady after authorities again conducted a fixed-rate JGB Bond purchase operation (second operation this week) to keep their yield control target around +0.00%.

EUR/USD (€1.1625) trades sideways in the aftermath of the ECB policy decision with the pair remaining stuck in the tight €1.16-1.17 range it has been for the past month.

5. French consumer spending sluggish in June

Data this morning showed that French consumer spending was lethargic last month, with household expenditure staying ‘virtually flat,’ according to statistics agency Insee.

Digging deeper, consumer spending rose +0.1% on month in June, well below market expectations for a rise of +0.5%.

Spending was up +0.3% on year – the agency also revised May’s figure for household expenditure on goods to +1.0% from +0.9%. Consumption in food and energy was stable in June, with a slight rise in engineered goods and a slowdown in durables.

Forex heatmap

Trump and Juncker to set the dollar’s tone

Wednesday July 25: Five things the markets are talking about

Euro equities have found some support, following Asian stocks as earnings season continues, although trade tensions remain to the fore ahead of today’s meeting between President Trump and E.C chief Jean-Claude Junker.

Most G10 currency pairs trade in a tight range awaiting today’s development from the U.S/EU meeting. In fixed income, most U.S Treasuries prices have edged a tad higher along with E.U government bonds.

Markets are struggling to build on Tuesday’s upbeat session as trade relations worries between the world’s biggest economic powers return to the fore.

Elsewhere, the AUD (A$0.7419) has had a mixed reaction with G20 currency pairs after inflation data missed estimates last night, backing the case for the Reserve Bank of Australia (RBA) to keep interest rates at a record low. The pound (£1.3155) is currently on to gains initiated by PM May taking control of Brexit talks.

In commodities, crude prices are higher, supported by lower inventory levels.

On tap: As the week continues, more corporate earnings come on line, while the ECB’s monetary policy will be the markets focus on Thursday. On Friday, Trump and his economic team are increasingly convinced the GDP numbers will be strong – he expects Q2 GDP to rise to as much as +4.8%!

1. Stocks get the green light

Overnight, Japanese stocks rallied for a second consecutive session, supported by gains in steelmakers and metal producers, as the market welcomed China’s pledges of a more forceful fiscal policy.

The benchmark Nikkei share average rallied +0.46%, expunging a significant of Monday losses on hearsay reports that the BoJ may adjust its policy at next weeks monetary policy meeting (July 30/31). The broader Topix gained +0.47%.

Down-under, Aussie stocks underperformed as the major banks faltered again following a soft CPI print. The S&P/ASX 200 fell -0.3%, with only the resources sectors showing a meaningful gains, supported by higher commodity prices. In S. Korea, the Kospi struggled overnight, barely getting back into positive territory. The benchmark fell -0.3% to move back toward its 14-month lows. Drug stocks were a noted sore point, while tech stocks eliminated those declines.

In Hong Kong, stocks rallied overnight led by the energy sector as investor sentiment improved on signs that the PBoC is loosening monetary and fiscal policies to prevent a domestic economic slowdown. The Hang Seng index rose +0.9%, while the China Enterprises Index also gained +0.9%.

In China, equities ease after three-straight days of gains. The blue-chip CSI300 index ended down -0.1% while the Shanghai Composite Index also eased -0.1%.

In Europe, regional bourses trade mixed amid another busy day for earnings.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.1% at 388.0, FTSE -0.6% at 7659, DAX -0.2% at 12662, CAC-40 +0.2% at 5444, IBEX-35 -0.3% at 9742, FTSE MIB +0.1% at 21,897, SMI +0.1% at 9016, S&P 500 Futures -0.1%

2. Oil rises as U.S crude inventories fall, gold higher

Oil prices remain supported after U.S data yesterday showed that domestic crude inventories fell more than expected last week, easing worries about oversupply.

Global benchmark Brent crude was up +50c, or +0.7% at +$73.94 a barrel, after gaining +0.5% yesterday. U.S light crude is +5c higher at +$68.57, having risen nearly +1% in its previous session.

API data yesterday showed that U.S crude inventories fell by -3.2M barrels in the week to July 20 to +407.6M barrels. Consensus was expecting a decrease of -2.3M barrels.

Dealers will take their cues from today’s DoE report (10:30 am EDT).

Ahead of the U.S open, gold prices have inched higher as the ‘big’ dollar held steady ahead of today’s U.S and E.C meetings. Spot gold is up +0.2% an ounce. U.S. gold futures for August delivery are +0.1% higher.

3. Yields play in a tight range

Most sovereign bond yields continue to consolidate as dealers search for fresh impetus to head in a new direction. The economic calendar provides no new hints ahead of tomorrow’s ECB meeting.

However, today’s meeting between E.C Commission President Jean-Claude Juncker and President Trump could fuel further trade concerns, while cross-market themes and the lack of market liquidity can still provide erratic price moves.

The yield on U.S 10-year Treasuries has dipped -1 bps to +2.94%. In Germany, the 10-year Bund yield has fallen -1 bps to +0.39%, while in the U.K, the 10-year Gilt yield has decreased -1 bps to +1.264%.

4. FX markets trade sideways

The FX market trades in a tight range ahead of the today’s key Trump/Juncker trade talks stateside.

The EUR/USD (€1.1703) is slightly higher, but contained within this months trading range. E.U data continues to take the back-stage ahead of tomorrows ECB policy decision.

Note: The ECB is widely expected to leave its key policy settings and guidance unchanged after it announced its plans for monetary policy beyond September last month

USD/JPY (¥111.14) is holding above the psychological ¥111 level as fixed income dealers price-in that the BoJ would not likely make any policy changes until at least October.

Elsewhere, China is letting the yuan slide primarily to combat a slackening economy, as the government rolls out more pro-growth measures amid an intensifying trade feud with the U.S.

5. German July Ifo business expectations lowest in four-months

German data this morning revealed that domestic business expectations fell further this month, albeit only marginally, according to the Ifo Institute’s monthly survey.

While the Ifo measure of the current business situation improved a bit, the expectations component hit its lowest level in two-years.

The Ifo business-climate index fell to 101.7 from 101.8 in June.

Note: It marks the lowest reading in 16-months.

“The German economy continues to expand, but at a slower pace,” said Clemens Fuest, the president of the Ifo Institute.

Digging deeper, uncertainty about global trade policy remains high, with potential tariffs on the auto sector being a key concern for Germany.

Forex heatmap

U.S dollar boosted by higher Treasury yields

Tuesday July 24: Five things the markets are talking about

Overnight, Euro bourses along with U.S equity futures have edged a tad higher on the back of a plethora of positive corporate earnings boosting investor sentiment.

Also, China’s determination to support the world’s second largest economy has helped to support various risk assets in the Asia session overnight. Is there another cut to its reserve-requirement ratios (RRR) coming? China needs to shore up economic growth in the face of an actual trade war.

In FX, the EUR (€1.1695) is little changed, supported by German data showing that they have so far resisted worries over disruption to trade. In China, the People’s Bank of China (PBoC) guided the Yuan to new 12-month lows.

U.S Treasuries have backed up a tad along with Euro sovereign bonds.

Elsewhere, crude oil prices trade atop of its recent lows, while gold prices are steady.

On tap: As the week continues, more corporate earnings come on line, while the ECB’s monetary policy will be the markets focus on Thursday. On Friday, Trump and his economic team are increasingly convinced the GDP numbers will be strong – he expects Q2 GDP to rise to as much as +4.8%!

1. Stocks see the light

Shares in Asia rallied on news China will increase spending on infrastructure among other measures to bolster growth.

In Japan, the Nikkei share average bounced overnight, reducing Monday’s losses as the yen’s (¥111.23) rally stalled exporters. The Nikkei ended the day up +0.51%. The index had fallen -1.3% the previous session as the yen soared outright. The broader Topix rallied +0.47%.

Down-under, Aussie shares rallied on Tuesday as firmer commodity prices supported material stocks, while financials followed its Wall Street peers. The S&P/ASX 200 index rose +0.6% at the close of trade. The benchmark fell -0.9% on Monday. In S. Korea, the Kospi stock index rose overnight, up +0.48%, in line with its Asian peers, while the won tumbled ahead of Friday’s U.S advanced GDP growth.

Note: South Korea’s Kospi has experienced the weakest H1 in five-years – down -5.7%.

In China, government bond yields and equities rallied overnight after authorities promised to pursue a more ‘vigorous’ fiscal policy, in an effort to support growth amid rising economic headwinds. The blue-chip CSI300 index rose +0.9% while the Shanghai Composite Index ended up +1.1%. In Hong Kong, the Hang Sang index rose +1.44%, while the China Enterprises Index gained +0.5%.

In Europe, regional indices trade higher across the board, supported by generally strong manufacturing PMI data and upbeat earnings from European names.

U.S stocks are set to open in the ‘black’ (+0.2%).

Indices: Stoxx600 +0.9% at 388.2, FTSE +0.7% at 7710, DAX +1.4% at 12718, CAC-40 +0.9% at 5424, IBEX-35 +0.7% at 9794, FTSE MIB +1.1% at 21,893, SMI +0.4% at 8992, S&P 500 Futures +0.2%

2. Oil is steady as U.S/Iran row balances trade worries, gold lower

Oil prices remain little changed as rising tension between the U.S and Iran highlight potential risks to supply, while escalating trade disputes raised the prospect of slower economic growth and perhaps weaker energy demand.

Brent crude oil is unchanged at +$73.06 a barrel, while U.S light crude is up +15c at +$68.04.

Note: Both benchmarks have fallen this month as crude supplies from Russia, Saudi Arabia and other members of the OPEC have increased and unscheduled production losses have eased.

To date, market sentiment remains driven by geopolitical worries in the Middle East or that Trump’s trade dispute with G7 economies could dampen global growth.

Note: Iran, OPEC’s third-largest producer is pumping +3.75M bpd, has come under increasing U.S pressure, with President Trump pushing countries to cut all imports of Iranian oil from November.

Ahead of the U.S open, gold prices have edged down overnight on a firmer dollar and a rise in U.S Treasury yields and as the markets reaction to the dispute between the U.S and Iran remains somewhat muted. Spot gold is down -0.3% at +$1,220.27 an ounce, while U.S gold futures for August delivery are -0.4% lower at +$1,220.20 an ounce.

3. Sovereign yields continue to back up

The Nikkei has suggested that politics could be a factor at the BoJ upcoming July 31 policy decision. It suggests that political considerations could pressure the central bank to take action at the July meeting, as a policy decision at the September meeting could influence the LDP leadership elections.

It also notes that Japan has regional elections in April 2019, while in October of 2019 the consumption tax is expected to rise to +10% from +8% – consensus believes the further you look out the ‘curve’ the more difficult it will be to make changes to policy.

In Canada, sovereign bond prices fell yesterday after positive economic data weakened the markets demand for the safety of government debt. Yields on the 10-year Treasury note were recently at +2.22% after it was reported that Canadian wholesale trade rose +1.2% m/m in May.

Note: Last Friday saw better than expected Canadian data – annual inflation had reached a new six-year high, boosting market expectations for another rate increase from the BoC this year.

Elsewhere, the yield on U.S 10-year notes have gained +1 bps to +2.96%, the highest in almost six-weeks. In Germany, the 10-year Bund yield rallied +1 bps to +0.42%, the highest in almost five-weeks. In the U.K, the 10-year Gilt yield climbed +3 bps to +1.298%, the highest in two-weeks.

4. China fixes yuan at fresh one-year low

Overnight, the U.S. dollar has regained some strength, boosted by rallying Treasury yields.

Elsewhere, Chinese officials guided the yuan -0.4% weaker outright, fixing the Chinese currency at a fresh one-year low. The PBoC set the dollar’s midpoint for daily trading at ¥6.7891, compared with ¥6.7593 Monday. The ‘mighty’ dollar ended onshore trading yesterday at ¥6.7834.

EUR/USD (€1.1685) has reversed some of its initial losses in the Euro session as the major PMI manufacturing data beat expectations. The Euro upside has been limited in the belief that the ECB is on hold regardless of any incoming data.

USD/JPY (¥111.23) is holding above the psychological ¥111 handle as the market debates the prospect of a possible tweaking the BoJ’s policy on July 31.

GBP/USD (£1.3109) trades atop of its recent lows as BoE member, Anthony Broadbent, stated that he was not sure if whether he would vote for rate hike next month.

5. German growth strongest since February

July data saw a further pick-up in the rate of growth of Germany’s private sector economy from a 20-month low in May to a five-month high, driven by a stronger increase in manufacturing output.

The IHS Markit Flash Germany Composite Output Index rose to 55.2 in July from 54.8 in June, to signal a second successive monthly acceleration in the rate of growth in private sector business activity.

Digging deeper, new order growth also gathered pace, while private firms continued to add staff and price pressures intensified.

Note: By sector, services business activity increased at a solid rate that was little changed from June, while manufacturing output growth was the fastest since April.

Forex heatmap

Trade and currency wars a market threat

Monday July 23: Five things the markets are talking about

A new week starts with equities under pressure as capital markets digest warnings from G20 finance ministers about the impact of protectionism on growth – “risks to the world economy have increased.”

Also raising concerns is the Sino-U.S trade war is now spilling over into currency markets with President Trump rhetoric supporting the U.S administration preference for lower U.S dollar interest rates and a weaker currency.

Elsewhere, the yen (¥111.00) has found support while JGB’s slid on speculation about Bank of Japan’s (BoJ) stimulus. Crude prices trade a tad softer amid concern the escalating trade rows will destabilize energy demand.

On tap: an E.U Trade Commission is due to arrive stateside this week for trade talks. Expect some tough questions, demands and their own list of retaliatory measures in response to proposed U.S tariffs. The highlight of the week should be Thursday’s European Central Bank (ECB) monetary policy meeting.

1. Stocks start the week under pressure

Japan’s Nikkei fell to a ten-day low overnight, with exporters under pressure by the yen’s (¥111.00) rally and by market speculation that the Bank of Japan (BoJ) could wind back its exchange-traded fund purchases. The Nikkei ended the day down -1.33%.

Note: The market is speculating that the BoJ could debate changes in its monetary policy at its upcoming meeting, with potential tweaks to its interest rate targets and stock-buying techniques on the table.

Down-under, Aussie shares fell on President Trump’s threat to impose tariffs on all Chinese imports. The S&P/ASX 200 index declined -0.9% at the close of trade. The benchmark gained +0.4% on Friday. In S. Korea, it was a similar story. The Kospi fell about -1% overnight following Trump’s comments about tariff’s and the currency last week.

In China, stocks rallied on Monday, aided by strength in financials and industrial stocks, but a slump in healthcare shares capped the broader gains. The blue-chip CSI300 index rose +0.9% while the Shanghai Composite Index ended up +1.1%.

In Hong Kong, it was a similar story. Stocks rose slightly overnight, as declines in tech and consumer shares were offset by strength in financials. The Hang Seng index rose +0.1%, while the China Enterprises Index gained +0.5%.

In Europe, regional bourses are trading mostly lower across the board, following a mixed session in Asia. The Italian FTSE MIB is in focus following weakness in shares of Fiat and Ferrari after the stepping down of its CEO Sergio Marchionne due to health.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.1% at 385.1, FTSE -0.4% at 7651, DAX -0.1% at 12549, CAC-40 -0.3% at 5382, IBEX-35 +0.2% at 9743, FTSE MIB -0.1% at 21,775, SMI -0.5% at 8947, S&P 500 Futures -0.1%

2. Oil steady after G20 warns of risks to growth, gold higher

Oil prices have stabilized as worries over production losses were outweighed by concerns that trade disputes would reduce economic growth and hit global energy demand.

Benchmark Brent crude oil is up +15c at +$73.22 a barrel, while U.S light crude is unchanged at +$68.26.

G20 Finance ministers over the weekend called for more dialogue to prevent trade and geopolitical tensions from hurting growth as “downside risks over the short and medium term have increased.”

Note: Baker Hughes data on Friday showed that U.S energy companies last week cut the number of oil rigs by the most since March following recent declines in oil prices. Drillers cut five oilrigs in the week to July 20, bringing the count down to 858.

Ahead of the U.S open, gold prices are steady atop of a one-week high as the dollar eased to a two week low after President Trump criticised the Fed’s interest rate tightening policy. Spot gold holds steady at +$1,231 an ounce. U.S gold futures for August delivery are nearly unchanged at +$1,231 an ounce.

3. Japan yields in focus

JGB’s have sold-off along the curve on reports late Friday that the BoJ might consider changes to interest rate targets. The market is speculating that the BoJ might be willing to let 10-year JGB yields (+0%) rise to some degree including a possible hike of the target level. Overnight, JGB 2-, 10- and 30-year yields were higher (+1.8, +4.5, and +8.0 bps respectively).

BoJ officials said to be looking for ways to keep stimulus program sustainable while reducing the harm it causes to markets and bank profits.

Note: The BoJ stepped in to buy unlimited bonds at a fixed rate of +0.11%, to cap the move.

On tap for this week: The ECB monetary policy meeting is on Thursday, no policy stance expected, but the market is looking for clarification on their first potential rate hike.

Elsewhere, the yield on 10-year Treasuries gained less +1 bps to +2.90%, the highest in more than a month, while in the U.K; the 10-year Gilt yield advanced +1 bps to +1.232%.

4. Dollar under pressure from Trump rhetoric

The ‘mighty’ USD maintains its softer tone after President Trump criticized the Fed for raising interest rates and suggested the USD was too strong.

Aside from currency Twitter rants, the markets focus this week will be on the ECB rate decision and press conference on Thursday. Consensus is ‘not’ anticipating any policy change in the short to medium term, however, the markets will be on the lookout for any clarification on the first potential rate hike. The EUR/USD is still flipping alternately between moves towards €1.16 and over €1.17 in response to news on the trade row, given the lack of clear direction.

GBP (£1.3124) continues to remain vulnerable to “headline risk,” but consensus believes a lot of negativity seems to be already priced. With parliament in recess, sterling has the potential to stage a modest retracement from its current area.

5. G20 communiqué

In their final communiqué yesterday from their meeting in Argentina, finance ministers and central bankers from the G20 economies said, “Heightened trade and geopolitical tensions pose an increased risk to global growth” and called for greater dialogue.

“Global growth remains robust and unemployment is at a decade low. However, growth has become less synchronised recently, and downside risks over the sort and medium term have increased,” said the communiqué.

Forex heatmap

Fed Powell advances the dollar

Wednesday July 18: Five things the markets are talking about

U.S assets get another leg up from rookie Fed Chair Jerome Powell who again expressed optimism over the U.S’s economic growth and stable inflation, telling Congress yesterday that domestic data should keep the central bank on track to raise “gradually” short-term interest rates. However, as per usual, there was a disclaimer – it was too soon to say if trade disputes might interfere with his plans.

To date, the Fed has refrained from commenting on trade policy, saying it is outside of their remit, yet Powell did caution that “open economies have fared better than closed ones.”

Elsewhere, commodity prices continue their decent, dragged down mostly by crude prices, which are off another -1% on a surprise U.S. crude stockpile report, while the ‘big’ dollar is outperforming its G10 currency pairs, with many EM currency pairs trading atop their multi-year lows outright.

In fixed income, Treasury yields have backed up along with most European bonds. Global equities have had a mixed overnight session.

On tap: Fed Chair Powell will testify for a second day on the hill today (10:00 am EDT).

1. Stocks mixed results

In Japan, the Nikkei share average advanced to a one-month high overnight as exporters – in particular, the auto sector – found support after the dollar hit a six-month high against the yen (¥113.04). The Nikkei gained +0.4%, as too did the broader Topix.

Down-under, Aussie stocks rallied after four consecutive session losses in the past six sessions, supported by one of the country’s biggest companies by market cap. The S&P/ASX 200 rallied +0.7% as BHP Billiton jumped +3.3% following an upbeat production update. In S. Korea, stocks slid to session lows in some heavy trading. After jumping as much as +0.9% on the open, the Kospi finished down -0.3%, recording its third-straight drop.

In Hong Kong and China, stocks came under renewed pressure from a weaker yuan, which has reduced appetite. In Hong Kong, the Hang Seng index fell -0.2%, while the China Enterprises Index lost -0.1%, while in China, the blue-chip CSI300 index fell -0.5%, while the Shanghai Composite Index lost -0.4%.

Note: Overnight, China’s yuan hit a two-week low outright, breaching the key ¥6.700 level – a rising dollar raises concerns of further capital outflows.

In Europe, regional bourses have opened slightly lower and are trading sideways. The financial sector remains the best performer in muted volatility, while tech stocks are underperforming.

U.S stocks are set to open ‘flat.’

Indices: Stoxx50 -0.2% at 3,446, FTSE +0.1% at 7,608, DAX flat at 12,562, CAC-40 flat at 5,412; IBEX-35 flat at 9,714, FTSE MIB +0.4% at 21,906, SMI -0.4% at 8,812, S&P 500 Futures flat.

2. Oil prices fall on rise in U.S stocks, gold lower

Oil prices again have come under renewed pressure after yesterday’s data reveal a rise in U.S crude inventories last week, defying markets expectations for a “big drop,” while concerns about weak demand again have resurfaced.

Brent crude oil is down -60c at +$71.56 a barrel – the benchmark hit a three-month low yesterday – while U.S light crude is down -50c at +$67.58, not far off Tuesday’s one-month low of $+67.03 per barrel.

Expect today’s price action to largely depend on what the EIA release comes in at. Yesterday’s API data showed an unexpected rise of more than +600K barrels in national crude inventories. For today, the market is forecasting a decline of -3.6M barrels in U.S crude stocks for the week through July 13 (10:30 am EDT).

Also putting pressure on energy prices for the past month is Saudi Arabia and other OPEC members agreeing to increased production, while investors have also begun to worry about the impact on global economic growth and energy demand of the escalating Sino-US trade dispute.

Ahead of the U.S open, gold prices have slipped to a new 12-month low as the ‘big’ dollar firms after Fed Chairman Powell’s U.S economic outlook reinforced the markets views that the central bank is on track to “steadily” hike interest rates. Spot gold is down -0.2% at +$1,224.16 an ounce. U.S gold futures for August delivery are -0.2% lower at +$1,224.30 an ounce.

3. Sovereign yields on the move

In Europe, investor uncertainty over global growth is compressing German 10-year yields, and the hunt for yield then sees demand spill over to other debt further out the curve. The gap between German 10- and 30-year Bund yields are at its narrowest in over five-weeks at +67 bps.

In the U.S, the Fed Chair Powell indicating an “unsurprising” preference for a continued steady rise in interest rates is inevitably flattening the U.S government yield curve. The spread between the two-year and 10-year Treasury bonds is narrowing and is last at +24.7 bps.

The yield on 10-year Treasuries has climbed +1 bps to +2.87%, the highest in more than two weeks. In Germany, the 10-year Bund yield has gained less than +1 bps to +0.35%, while in the U.K; the 10-year Gilt yield has rallied less than +1 bps to +1.258%.

4. Dollar goes from strength to strength

The mighty U.S dollar is holding onto its recent gains in the aftermath of Fed chair Powell’s testimony yesterday. With the Fed chair reiterating that interest rates would continue to increase gradually again supports interest rate differentials trading strategies.

Note: Euro and U.K inflation data this morning remained underwhelming (see below).

EUR/USD is a tad softer by approx. -0.3% at €1.1622, while weaker-than-expected U.K inflation data for June sent sterling to multi-month lows against the dollar and the euro.

GBP/USD has fallen to a 10-month low of £1.3010 and EUR/GBP has rallied to a four-month high of €0.8923. Also, Brexit concerns continued to weigh upon the pound as PM May’s government again survived a recent Brexit amendment vote by a “slim” margin.

Note: U.K’s June CPI was the key focus with prospects of an August rate hike in the balance. Odds for a hike have diminished a tad, now down to +72%.

5. U.K inflation steady in June

Data this morning showed that annual inflation in the U.K. held steady last month, as summer-clothing sales offset a rise in petrol prices.

As reported from the ONS, consumer prices rose +2.4% on the year and keeps annual price-growth in excess of the Bank of England’s (BoE) +2% target.

Today’s data should keep the BoE in line to hike again next month – only politics and trade disputes could derail Governor Carney’s agenda.

Digging deeper, the data shows that prices charged by companies at the factory gate accelerated in June, gaining +3.1% on year compared with an annual rise of +3% a month earlier, in a sign that inflationary pressures are building. Raw material costs jumped +10.2% on year according to the ONS.

Note: U.K policy makers have said they expect to raise borrowing costs three or more times during the next few years to bring inflation back to their goal.

Forex heatmap

What sparked the dollar rally ? ( OANDA Trading Podcast on Money FM 89.3)

Stephen Innes Head of Trading Asia tells Michael Switow why the yen is weak, and stocks are rallying.

Money FM Singapore 89.3

 

 

When the going gets tough, the tough get going

When the going gets tough, the tough get going

U.S. stocks are trading off their intraday highs late in the NY session weighed down by financials profit-taking ahead of the deluge of bank earnings reports on Friday, robust US economic data had temporarily overshadowed fears over global trade disputes. That was until a late NY session headline suggesting the US is reportedly preparing the release of a new $200B China tariff list according to two people familiar with the matter. But a list is a list and not an actual tariff, so lots to be ironed on this one. But regardless, it will put the  markets back on the defensive for the time being

Until that point, the market was indeed embracing the raft of outstanding US economic data, and despite the apparent downside risks from an escalating trade war the fact investors continue to plough cash into equities, that was a central dictating market theme. And given the likelihood of a strong earnings season, and at one point investors were heard yelling down Wall Street “what trade war”?? Indeed, when the going gets tough, the tough get going. That was until the latest headline when much of the tough slogging was quickly unwound in minutes as the SPX shed 100 points in the flash of an eye reminding investors we are in tricky markets, and nothing can be taken for granted.

The currency markets, however, are a different kettle of fish where the market risk is relatively light with Forex traders doing little more than rotating from what currency pair is hot from what is not. In other words, chasing the fear of missing out seems to be a common theme among G-10 trades after a considerable volume of USD long positions have been culled over the past few weeks, especially against the EUR and AUD. There is a reason why risk is so low in currency land; it’s the real fear of getting sideswiped by trade war headline risk.

Oil Markets

Oil prices continue to gain on yet more production outages with Brent briefly breaching the $ 80 per barrel high water mark as strikes by workers in Norway and Gabon added to global production outages.

Without question, supply risk continues to dominate trader psyche and after the API reported another massive draw traders are now positioning for another sizeable drop in today’s EIA weekly report.

ON the bigger picture, the markets continue to access the intermediate-term supply impact as the Nov. 4 US-imposed deadline for allies to halt Iranian imports moves nearer. All the while the Libyan disruptions continue to run on.

At the end of the day, supply concerns and more disruptions  continue to skew bullish for oil prices

Gold Markets

After a brief peak above 1265 Gold prices resumed its downward path as global stock markets trade well. However Gold prices pulled came off session lows on NATO concerns as the EU countries are worried about possible side agreement between Putin and Trump which could profoundly weaken the alliance. Also, the latest tariff headlines suggesting the US is reportedly preparing the release of a new $200B China tariff list according to two people familiar with the matter should keep a bid under the market. Gold dips remain attractive especially for investors knowing that gold should be an essential part of any diversified portfolio, especially in these highly charged political times.

Currency Markets

With this morning’s tariff headline risk, I need to remind myself that the trade war is good for the dollar, as the US has the upper hand in negotiations and whichever way this issue gets resolved it’s likely to be positive for the US current account.

GBP: Cable remains the land of the brave requiring a sharp eye and quick trigger given the plethora of Brexit headline risk. But indeed, in this muddied UK political landscape it does suggest the endgame will be the UK  never leaves the EU, and in this scenario, the Pound is ” cheap as chips”. When the UK political malaise subsides, Sterling  will be the shining star of the market

JPY: The USD did look poised to break out topside given the fading of trade rhetoric and a real risk-on environment developing. US equities have held up remarkably well as the bull market keeps marching her despite the reams of negative news thrown at the benchmarks. Long USDJPY is entirely under-owned as risk-off trades are still prevalent vs the JPY, and on a break of 111.50-75 levels, dealers will be forced into a risk on trade. But as usual, nothing ever works out as planned so we may have to re-explore this scenario later once we iron our fact from fiction over the latest US trade escalation headline.

MYR: It was an up and down day for the Ringgit which was in high demand and dare I say outperformed early on Bond related inflows as investors position for dovish pause for the BNM. The MGS curve was in firm demand particularly the attractive long end yields which are usually the domain for real money investors and pension funds. Indeed, last weeks Bond market awakening was the real deal!!

As for the BNM policy decision, we anticipate no actual shift in rates, Nor Shamsiah is a BNM veteran, and it would suggest policy continuity, but the markets will be more focused on forwarding guidance. Given the political and fiscal struggles ahead, I think it’s easy to assume this will not be a hawkish pause.

Oil prices continue to flourish and should push higher given the bullish supply skews which should go a long way in supporting the government coffers.