OANDA Trading Asia markets update

Asia markets update

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

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

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

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

Currencies

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

Indian Rupee

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

Oil Markets

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

OANDA Trading Podcast: BFM 89.9 Kuala Lumpur

EM Asia: Next weeks discussions

By Stephen Innes Head of Trading Asia @steveinnes123

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

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

China

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

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

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

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

INR and IDR 

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

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

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

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

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

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

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

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

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

US-China trade war, yesterday’s news.?

US-China trade war, yesterday’s news.?

The US stock markets catapulted to a new record high on Thursday as investors continued to sidestep fears over the escalating global trade war and instead focused on a boomy American economy. And at least for today anyway, US-China trade war was yesterday’s news.

Make no mistake the US economy is running on all cylinders, robust growth, soaring employment and rising capital investments. Suggesting the healthy US economy is more than just a short-term knock-on effect from the intravenous elixir of easy credit and fiscal glucose. The US economy is thriving.

Oil Markets

And when you thought the ducks were aligning for a significant push higher in oil prices, enter President Donald with yet another timely twitter castigation of OPEC. Which comes just days before OPEC, Russia and non-OPEC partners meet in Algiers this weekend to review the state of the oil market, with a focus on the likely supply impacts of US-led Iran sanctions. Another case of President Trump having his cake and trying to eat it also, as its those US imposed sanctions on Iran and Venezuela that are causing the spike in oil!!

The market had until that point been trading fluidly with the assumption that Saudi Arabia is now comfortable with Brent at $80 or even higher, which is challenging the markets long-held supposition that prompt Brent between $70 and $80 was OPEC sweet spot.

But with significant support levels holding firm and sentiment is securely buttressed by Iran sanction, politically inspired dips in a bullish market will undoubtedly be bought. The problem, however, is we’re heading into a weekend where what was initially thought to be a meeting of OPEC steering committee to discuss Oil markets current affairs,  has morphed into an unofficial OPEC meeting with 20 + nations at the table, which means traders were going to profit take and reduce risk anyway. I guess President Trump brought forward that decision for traders  20 hours earlier than expected and perhaps the follow through a little thicker than anticipated.

So why the 1.5 % sell-off?

And while Saudi Arabia is revelling in these Iran sanctions, they are also worried that any sanctions-related, oil prices spike  will trigger fresh criticism from Trump, especially ahead of the November election where the blame for high energy prices will squarely fall on the Trump administration ramping up geopolitical risk, for the sake of a hawkish international policy mandate.

Indeed, Saudi Arabia does fear the ” wrath of Trump ” and are taking few chances with the longshot NOPEC bill lingering, but the real question is, even if they wanted to ramp up production, could they??

Gold Markets.
The precious complex is quiet while modestly reacting to the weaker dollar but surging US Bond yields are holding back speculators and not to mention there’s nary a hedger insight with US equity markets rising above all-time high-water marks.

Currency Markets

So where are the dollar bulls ?? more comfortable to short bonds in this market than to go long dollars, so look over at the bond desk!!

Indeed, a tangled web of confusion as USD remains doughy and while US yields didn’t lead overnight, they did hold stable support levels. Of course, the first discussion across our global trading desks was will the USD weakness linger. And the conclusion was a resounding maybe!! While the dollar was widely expected to wobble into the US midterm elections, I think that playbook trade has been brought forward by many factors that we will look at below. But ultimately USD should remain constructive post-midterms for no other reason than as the US economy is doing better than anyone else’s and the Feds will continue to raise interest rates.

The dollar leak

So modern-day forex desks are staffed by a compliment of the brightest kids, grizzled veterans and machine learning algorithms using 3000 data points, and still, no one can predict the course of the USD beyond 24 hours, well 8 hours to be exact in this market. So, forget trying to play long ball (6-month conjectures) and let’s look at some granularity that got us to the point this week where DXY/USGG10YR correlation has temporarily snapped.

EM markets have been catching the tailwind from CBT rate hike, CBR surprise rate hike, BI potential mandatory FX conversion for exporters and the RBI currency countermeasures. All of which contributed to taming the beast (USD) to various degrees. But a significant factor in adding to the current run of dollar weakness is the drop on safe-haven appeal after China suggested they won’t weaponise yuan in a trade war.

Yesterday the RBI stepped up their game as USDINR NDF fell abruptly this afternoon on wire reports suggesting RBI is studying the efficacy of taking oil companies USD demand away from the market. The state-run oil companies were now sourcing their entire dollar demand in markets, and the RBI is now considering opening a swap window to alleviate the pressure, something they have baulked at in the past.
Indeed, desperate times lead to drastic measures.

The Yuan rallied further on news that Mainland authorities are reportedly cutting import tax from most of its trading partners as soon as next month. Of course, the breadth and the actual tax % will be the key. Current estimates are the tax cut will be applied to around 1,500 consumer products. This move triggered more unwinding of trade war hedges as China will get creative to counter the adverse economic effects of US tariffs.

Trump constant attempt to undermine the Feds is also a distraction, as the markets knowing full well the Administration is lobbying for lower interest rates and a weaker USD in this trade war environment. None the less USD has put itself in the centre of discussion regarding what Fed Chair Powell is up to with Congress. Markets are chatty about this article  Bloomberg

And while the Forex markets have become a point for of frustration for some, overnights the price movements appear to be more related to USD haven hedge unwinds as opposed to any long-term structural adjustments the USD as the markets remain well within well-worn ranges.

G-10

The Euro

The EUR was toying with the market all week, and finally, the dollar bears got the bravado to take on the 1.1730 level which predictably triggered a cascading effect to 1.1780. So, with the USD bulls sidelined, short-term speculators seized the moment with the Euro Stoxx reaching a fresh all-time high and Bund yields moving higher pressed the 1.1730-50 zone and made a quick profit on the day.

The Japanese Yen

USDJPY is being carried higher by a higher NKY and higher USD rates

Asia FX
Regional Risk is very steady supported by thriving global equity markets a slightly weaker USD and a positive glean that North Korea’s leader Kim Jung-un has asked for a second summit with President Trump and has reportedly agreed to ‘verifiable’ dismantling of a missile testing site during the North/south summit.

Join me live at 8:30 AM SGT  discussing my views on   MONEY FM 89.3 Singapore   

 

 

US yields on a runner

US yields on a runner

One could expect a bit of apprehension to enter the fray, and not just from a relief rally hangover, but local bond and currency traders could start looking over their shoulders at US 10y bond yields that have raced higher to 3.05 %.

While everyone thought US bond yields could begin to rise in September as the markets emerged from summer holiday, but few could have predicted yields to come on as strong as the did with US 10Y touching to 3.05 %
While last NFP data produced strong wage growth data I think its as much a function of hawkish fed speak as anything else Where the most significant shift in my view comes from Fed Governor Lael Brainard, who I dare say it starting to roost with the Hawk suggesting the sitting Federal Reserve Board is a tad more hawkish than markets have priced in.

While last week lower than expected US CPI, print does suggest we are nowhere near a reprice higher of the Fed curve from an inflationary standpoint

But with the market emerging from its summer slumber and the US economy rocking on overdrive, traders may soon realise that they are pricing 2019 rate hike risk far too pessimistically. If the strong run of US economic data continues and an even more so on the first glint of inflation.

The pragmatist in me says this is USD supportive and not an especially appealing prospect for local Asia markets, in my view

Tariffs? – So what!

The morning after

The morning after

US equity market has wholly shrugged off yesterday’s back and forth on US-China trade, as the robust US economy continues to sway investors. However, when we look back at the 2018 stock market run, a lot of ink will be spilt about the benefits of US repatriation flows which are keeping balance sheet flush which could  lead to   higher levels of capital spending, and in a low rates environment, should continue to support a more robust corporate earnings narrative.

While there’s a whole lot that can go upside down in US trade negotiations with  China, Europe and Canada and despite the market taking the bluster in stride, history tells us that tariffs are detrimental for global trade and commerce. As such the current levels of market buoyancy belie the possible groundswell that could overrun markets.

The bottom line why the market didn’t react negatively was the lack of shock and awe given the tariffs were so well telegraphed.

Oil Markets 

Oil prices remain supported despite a larger than expected build in the API US crude inventories report, but stocks at the Cushing, Oklahoma delivery point declined 1.6 million barrels according to the API.

Traders are ignoring today’s API data given while focusing on news from the middle east

Prices firmed when Russia pointed the finger at Israel when one of their reconnaissance planes was shot down, although it was later determined to be a  Syrian defence missle.  None the less any type of escalation in the middle east provided a fillip for oil prices.

But it was comments from Saudi oil officials that continues to resonate. It was only two weeks ago traders were assuming that OPEC was prepared to keep Brent trading between 70 and 80 per barrel. However, overnight chatter suggests that the Saudis are more than happy with a Brent price above $80 or that OPEC, more generally, is not considering raising output.

The September 23 OPEC+ meeting in Algiers turning into a significant affair with 20+ nation set to attend. It appears Saudis are putting their cards on the table ahead of the meeting and is currently being view through a bullish lens.

Gold Markets 

Continues to be driven by the USD, given the lack of clear direction overnight, the market continues to teeter-totter around the critical $1200 levels.

Currency Markets

JPY was the worst performing currency over the past 24 hours due to higher US yields and a more buoyant risk market, and of course, the Nikkei benefits through the weaker yen better for exports feedback loop.

Some focus on the BoJ meeting today. Expected to tow the line but forward guidance is the key after BoJ was discussing throughout the summer about tapering.

CAD was among the best-performing currencies globally on broader sentiment. Investors are waiting to restart conversations trader took the following in a very positive light House Majority Whip Steve Scalise stated. “While we would all like to see Canada remain part of this three-country coalition, there is not an unlimited amount of time for it to be part of this new agreement.”

AUD the return of global risk appetite has the Aussie bulls coming out of the woodwork. But with the A$ the main G-10 proxy to express China risk, I think the top side will be limited given the sheer volumes of headline risk.

MYR: Higher oil prices and a favourable risk environment should see the Ringgit trade more favourably, but the surge in US yields will temper trader’s expectations

Copper melts

MANILA, Sept 18 (Reuters) – London copper drifted lower for a third session running on Tuesday as China vowed to respond to the latest U.S. tariffs on about $200 billion of Chinese goods, exacerbating the trade war between the world’s two biggest economies.

In imposing the new tariffs, U.S. President Donald Trump warned that if China takes retaliatory action against U.S. farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”

China’s commerce ministry said the country has no choice but to retaliate against the fresh U.S. tariffs and hopes the United States would correct its behaviour.

“We know China can’t go tit for tat as they don’t have enough U.S. goods to tax,” said Stephen Innes, head of Asia Pacific trading at OANDA brokerage.

“So, if there is a more heavy-handed approach such as flat-out import restriction or overtly weakening the yuan, it could certainly bring the big market bears out of hibernation,” Innes said in a note to clients.

Commodities Weekly: Copper nears 15-month low as fresh tariffs announced

CNBC via Reuters

Seeing the forest for the trees

Seeing the forest for the trees

With trade war dominating the landscape, even more so after this morning’s US tariff headline, it’s easy to focus on markets from a one-dimensional perspective. But cross-asset trading is multidimensional and observing the more granular details can offer much-needed clarity in these difficult times.

US Markets

Certainly, Trade war worries are talking their tool on global equities with even the Teflon US markets showing some fraying at the edges. But today’s compass suggests trade-related global equity weakness is due to tech, as opposed to emerging markets or China. Apple, for example, does a booming bilateral business with China and with investors veering to the notion that recent weakness in U.S. tech is a result of administration earlier tariffs then a 200 billion wallop is being perceived particularly damning even for the remarkably resilient US heavyweights in the tech sector.

Ultimately equity markets remain in wait an see as big unknown remains Chinas response which will set the tone for risk sentiment. After all, much of this tariff headline was well telegraphed.

We know China can’t go tit for tat as they don’t have enough US goods to tax. So, if there is a more heavy-handed approach such as flat-out import restriction or overtly weakening the Yuan, it could certainly bring the big market bears out of hibernation.

With the US  implementing a graduated tariff hike, starting with 10 % on 200 billion and moving to 25 % at the start of 2019. The ball is clearly in China’s court. While the   US tariffs salvo is hardly middling, it’s not a bad as it could have been, so unless China hits with draconian measures, markets should remain supported after this morning knee-jerk reactions. Ultimately the graduated tariff hike allows more room to negotiate before the thumping 25 % levy gets triggered, so perhaps China may temper their response accordingly.

Smartwatches and Bluetooth devices were removed from the tariff list, suggesting the President is “watching” the market while taking the US heavyweight giants and US consumer under consideration.

Oil Prices
Iran sanctions will continue to provide near-term support, while discussions around global demand in the wake of this morning tariffs and speculation of further OPEC supply increases should temper upside ambitions.

Oil futures posted a minor loss on Monday. After finding some support from potential global supply losses among various OPEC countries (Iran and Venezuela). But prices eventually gave way and are tracking the CRB index lower pressured on the prospects that US tariff will negatively impact global demand.

Also, Washington continues to suggest that Saudi Arabia, Russia and the United States can raise output fast enough to offset falling supplies from Iran.

The September 23 OPEC+ meeting in Algiers is taking on a bit of life of a life of its own as what was initially thought to be a be a fundamental review of production data by OPEC’s steering committee has now turned into 20+ nation affair. Suggesting everyone wants a seat at the table most likely to discuss the supply disruption from Iranian sanctions, which is leading to speculation that further production increases will be presented at the meeting.

Gold Markets

Another case of rinse and repeat
A modestly weaker dollar and aggressive short-covering pushed gold above the $1200 teeter-totter level, this despite a more hawkish lean from Fed-speak last week. Besides, haven buyers continued showing some bravado felling more confident buying gold when the dollar is fading which is provided with a subtle tailwind for prices overnight as investors brace for possible more massive tariffs than what’s currently priced into the markets. But price action remains entirely dollar driven. So, what the dollar giveth the dollar taketh as USD haven demand is back in vogue post-trade announcement.

Further risk response will be dependant on China response.

Currency Markets

I am challenged not dollar bullish from a pragmatic US interest rate storyline. But of course, price action needs to be respected especially with the EUR veering towards 1.1700 again. The strong US economy suggests USD yields have further room to run. And when former doves like Fed Governor Lael Brainard, who I dare say, is starting to roost with the Hawks, it’s giving clear signals that this sitting Fed is more hawkish than the markets 2019 rates lean.

The Chinese Yaun 

The primary trade war currency hedge is back in play with USDCNH moving above 6.89 as the market awaits Chinas response. But seller should emerge given how quick the market response has been to take USDCNH higher and the uncertainty over Pboc’s next move.

Euro

With Trade ware dominating headlines early Monday morning it’s easy to overlook some basics shift in EU zone fear index with European Bank Index and CDS curve suggesting Italy’s risk premium is getting priced out the equation. Even Turkey, despite another currency wobble yesterday, is stabilising somewhat on the recent astonishing CBT rate hike. The diminishing fear factors could push Bund higher and provide support for the Euro.

Australian Dollar

The Australian Dollar has weakened on the 20 pips on the tariff news in consort with USDCNH moving higher as the Aussie will remain a G-10 proxy for China risk, so it’s susceptible to more headline wobbles in coming days especially China response which could be extremely crucial for risk sentiment. But so far, the Aussie reaction is pretty much following the tariff playbook.

We do have the RBA, but I suspect its unlikely to alter today’s negative Aussie lean.

Japanese Yen
Risk has wobbled on the Trade headline triggering some modest haven moves to the Yen. But volumes are light, as frankly market at his stage are not panicking as the bulk of this tariff headline was already factored.

Canadian Dollar

The Lonnie is sagging, but this is possibly more about positioning as the markets found themselves short around the 1.3000, and with the CAD $ Perma -bears failing to yield that level,  the tariff headlines have triggered more short covering. But moves toward towards 1.3100 will likely be faded as NAFTA discussion are still going on.

Malaysian Ringgit

The recent support for EM central banks (Russian, Turkey and India) is buffeting the EM complex.
The 200 billion in tariffs, while negative for regional sentiment, is not as impactful for the Ringgit as the currency remains relatively insulated due to domestic oil exports and improved term s of trade. But higher US interest rates do pose some significant concerns, especially if a more hawkish fed vs a more dovish BNM does come to fruition.

Super Thursday, indeed

Super Thursday, indeed

Super Thursday for some but a Topsy-Turvy one for others. Of course, much of that had to do with what side of the US dollar coin you were on.

Hope springs eternal for emerging markets anytime the US dollar weakens and yesterday was no exception. As indeed the stars aligned for emerging markets (EM) assets after an astonishing interest rate hike from the Central Bank of Turkey (CBT) of 625bp and an exceedingly soft US CPI data. And for beleaguered emerging markets, the timing could not have been any better as traders were coiled and ready to strike after the past fortnights of intense EM  bloodletting. Meanwhile, the BoE meeting proved a total non-event but the ECB, more constructive.

Not surprising, interbank EM currency volumes surged as a solidarity rally by proxy ensued, much to the relief of just about everyone quite frankly, as
US stocks pushed higher with the technology sector rebounding as participants took a more calming view of the US-China trade dispute while emerging market assets rallied on the weaker US dollar which supported a very bubbly risk environment.

Indeed, we could see this “risk on”shift that was set in play in early Asia yesterday extend throughout today’s APAC session. Mind you, chasing short covering rally can be fraught with danger.

With that in mind, let me do my best spoil the party by suggesting that much of this rally will depend on what level of diplomacy that can be reached from the US-China talks and if  President Trump is willing to fold a strong hand and not impose 200 billion in tariffs? But failing any progress on these fronts, the Pboc will be less incentivised to keep the RMB complex in check, and we could be in for another EM fracas if the Pboc guides the Yuan incredibly cheaper. And of course, there that small matter about rising US yields which generally sounds the death knell for EM currencies, but let’s leave that one alone until next week.

Oil Markets

Topsy Turvey Thursday indeed!!

Oil futures markets gave back Wednesday’s gains, but there must be more to it than a realisation that last weeks inventory reports included a significant increase in product inventories that more than offset the US crude inventory draws. That’s second nature for the Willey oil trading community, so the issue does run deeper Specifically, those same Willey veterans latched on to International Energy Agency report which indicated daily crude-oil output in the Organization of the Petroleum Exporting Countries climbed in August by 420,000 barrels a day, to average 32.63 million a day.

So, while the anticipated production drought from Venezuela and Iran could be an issue in the future, it’s not an imminent one as OPEC total crude production came in the right on top of estimates and triggered a bearish correction on both WTI and Brent prompt contracts.

So, in a nutshell, the market came off aggressively as Crude Oil supplies are not tight, well not yet anyway. But when you look at in the context that EM countries crude demands are at risk from an economic slowdown( tariff impact) coupled with the sturdy supply report, there are some concerns that increases from OPEC and non-OPEC producers can offset the Iran sanction concerns.

Gold Markets

A convincing snap in the  XAU-DXY  correlation overnight suggesting that the de-escalation in US-Sino trade dispute is having a calming effect on overall risk, and despite the dollar trading considerably weaker after the soft US CPI data, the tight correlation snapped.

Of course, from a hedger perspective, the focus has been on US equities as opposed to the US dollar so with global equities back on the boil there is little demand for gold in general. At the heart of the matter, ETF flows remain stagnant, and gold continues to be little more than a dead money trade at this point.

But the enormous tail-risk remains in play as when dollar strength return sand that tight XAU-DXY  correlation will come back with a vengeance with a high degree of certainty.

Currency Markets

Oh my, what a carry!!

The CBT set the one-week repo to an astonishing 24%! (+625bps) And that sigh of relief you heard out of Japan, was from Tokyo’s fervent carry traders who now have 24% annualised wiggle room to manoeuvre. We did see more TRYJPY buying this week than average, so there will be more than a few happy Japanese investors this morning especially after being nearly toppled when USDTRY rose more than three per cent yesterdy on President Erdogan who was bizarrely advocating for a rate cut.

And as expected on this decisive policy shift, it has triggered concurrent relief rally across EM.

EURO
Draghi was steady on headline inflation but a tweak in the core which is easily interpreted in the less dovish context that the ECB does expect inflation to concenter at its target as monetary accommodation is reduced at the fringe. A bit of a tough pill to swallow for EUR bears but, price action must be respected, and with US CPI providing little relief for the nascent dollar correction, I suspect the EUR bears will remain sidelined until more definitive signals emerge.

Australian Dollar
Price action was telling as indeed short position was much cleaner after the yesterday’s short Aussie squeeze, so we didn’t get that outsized reaction on positive EM development nor the weaker US CPI print that many had expected. But since we get to do this all over again next week, “Prudence”, suggests its time for the sidelines and to fight another day.

Malaysian Ringgit

Regional risk should trade positively today, suggesting the MYR will be mildly supported, but with Oil prices falling overnight, it will likely balance out the EM solidarity knock-on effect from the astonishing 625 bps CBT rate hike, so we could expect the MYR to trade neutral bias given the mixed signals.

Gold shines as the dollar fades

– Gold prices on Thursday held steady near a more than one-week high hit in the previous session, with hopes for a new round of U.S.-China trade talks weighing on the dollar.

Gold prices have fallen nearly 12 percent since a peak in April amid intensifying global trade tensions and under pressure from rising U.S. interest rates.

Higher rates make non-yielding bullion less attractive, and tend to boost the dollar, in which gold is priced.

“Gold is trading entirely on the mercy of the U.S. dollar … to judge gold by any other metric in this environment provides an indecisive, inconclusive and highly inconsequential signal,” said Stephen Innes, Asia-Pacific trading head for OANDA.

 

Reuters

Another Brexit bounce

Another Brexit bounce

Global investors were encouraged by a breakthrough on the European political landscape when reports suggested the European Union chief Brexit negotiator Barnier has been given enormous latitude to get Brexit signed and even stated he expects a deal to happen within weeks.

US Markets
US equity market continues to climb that trade war wall of worry as US economic fundamentals, and the prospect of higher corporate earnings are just too juicy to ignore. Despite last weeks selloff which was arguably driven by emerging market tantrum, we’re still sitting near all-time highs as the S&P remains robust stable and seriously sturdy. So global cross-asset rotation out of riskier emerging market into the bullish S&P could continue given the optimistic overtones. Traders have thrown just everything including the kitchen sink at US stocks, and a week in week out the indexes come roaring back for more.

Asia Markets
Not expecting too much of a reprieve in Asia markets today as risk sentiment in the regions remains on unsure footing. I suspect local investor continue to view the US equities markets safe harbour appeal in a positive light why shying local markets.

Oil Markets 
Supply-side disruptions continued to offer some temporary support for Oil prices moved higher after Libya’s National Oil Corp. headquarters in the Libyan capital of Tripoli was subject to a terrorist attack, but prices then reversed as after the company head Mustafa Sanallah assured that production had been unaffected. Brent had also remained gingerly supported by the delayed restart of the Buzzard field in the North Sea due to poor weather conditions.

Speaking of weather, US Hurricane season does raise the odds that eventually, a storm could take aim at gulf coast rigs and refiners as intense weather patterns continue to form in the Atlantic Ocean. With that in mind, the Industry is focusing on Hurricane Florence, and while there are no refineries in the path of the storm, the Colonial Pipeline is prepping for possible power disruptions given the wind could reach Category 5 intensity. It could lead to pressure at the pump in the northeast.

This week’s US crude Inventory data will be a big factor in traders near-term trading decision, so the market has been trading very rangy ahead of the data. But concerns about rising Cushing inventories and some pre-inventory analyst’s surveys suggesting US inventories could build are holding back markets.

After last weeks bearish outside week, oil bulls are having a tough time getting back in the saddle and in the absence of any significant positive drivers are prepared to sit on support bids near current levels. But the markets have not lost confidence and are expecting substantial price pressure as Iran sanction loom.

Gold Markets 

Gold prices caught a tentative bounce on a slightly weaker USD. But the prospects of rising US interest will ultimately tame this rally. If this week US economic data is hawkish Fed supportive, it could provide the catalyst to move gold through $ 1190 support as the US  dollar could surge.

Currency Markets

Why isn’t the dollar higher?

Despite the substantial US NFP payroll print suggests the Feds will remain on Dot Plot autopilot, but with the plethora of Fed speak this week there remains a level of uncertainty that trade slowdown, tariff worries that hit commodity and emerging markets could provide the Feds cause for pause. But I think the lingering effect of Chair Powell Jackson hole comments which were interpreted as dovish by many market participants are too fresh in some trader’s minds for those same reason mentioned above

The Euro and the British Pound

Barnier ’s optimism helped trigger a sterling relief rally as the markets were buying back volumes of Short Sterling position.

This positive shift could have a significant central bank effect over the medium term as its thought that a Brexit deal is a big piece of the EU puzzle that has been keeping both Bank of England and the European Central Bank on a defensive back. As such, the USD dollar was unnerved by the EU headlines with the Euro retracting from below 1.1530 eventually hitting 1.1615 before seller emerging and Sterling rocketed 100 pips register intraday highs above 1.3050.

But the Euro and Brexit sceptic in me suggests fading these moves as the divorce bill has yet to be announced, but I will become a believer if Cable trades +1.3130  on the follow through.

Japanese Yen

President Trump has throttled risk and has all but handcuffed USDJPY. And despite favourable differentials supporting the USD higher, risk hedgers remain seller at 111.25 which is capping moves higher.

The Australian Dollar

Should be a smooth move to .70 but trust me nothing ever comes easy in Forex trading and pushing through.7100 AUDUSD will be far from a walk in the park but should be in the offing. Overnight there was a reluctance to chase the market lower today. As perhaps some pause for cause in the absence of any definitive trade war rhetoric ratcheting up. It still feels bid at .71 despite AUDUSD precariously perched just above. Which suggests on a break on .7100 we could see a significant move lower as near-term stops trigger.

EM Asia

Rupee
The move higher in US yields post-NFP spilt over into the region and a negatively impacted the higher yielder. The Rupee was being preyed on by speculators due to current account deficit widening, and despite headlines about intervention but the effectiveness of intervention by central banks in a USD rising environment is one word ” Ineffective” and does little more than provide better levels to short the currency. The prospect of higher US interest rates and higher Oil prices on Iran sanctions is indeed a toxic elixir for the Rupee.

Malaysian Ringgit
Another quiet session in the Ringgit but remains pressured higher US interest rates but counterbalanced by robust oil prices

Korean Won

The second summit in the cards?, I’m following this positve regional development but awating further clarity .