Desperately seeking stability

US  Markets

From sandstorms in Riyadh to headwinds in Rome, escalating risk has effectively capped the recent swell in US Treasury yields, while the combination of Federal Reserve policy tightening and increasing debt supply should keep the trapdoor from giving way. But none the less, market participants will jostle between US growth momentum and the ever-threatening and escalating geopolitical risk, that could trigger a more significant flight to safe-haven currencies and assets.

US equity markets struggled across the finish line on Friday as investors contiued to take profits after morning gains gave way when a report showed U.S. home sales fell for the sixth month in a row. US housing growth continues to disappoint on familiar themes and remains one of the few red lights and the most significant drag on the US economy.

China Markets

Although local Asia sentiment remains poor, the SHCOMP staged an impressive reversal of Friday after China rolled out a series of speakers and rule changes to stabilise markets, but the pace of reversion does suggest it was aided on by state-owned funds to add some vim.  But Chinese markets remain under pressure from every economic angle leaving more than a few investors extremely sceptical Friday’s recovery will have lasting legs.

Oil Markets 

It should be a hectic week ahead in oil markets anticipating colossal participation amidst escalating headline risk this week . Bullish sentiment is clearly under pressure as oil traders search for  the next equilibrium.

Brent crude oil probed back above the $80 per barrel on Friday after China reported record refinery throughput for September.Reuters But the critical benchmark still closed below that technically essential and psychologically significant level. ($80 per barrel)

West Texas Intermediate crude oil followed stronger performances in the Brent market, but like Brent, closed below a key level, $70 per barrel, which is a significant fail for bullish sentiment

In China, higher seasonal demand and suspected stockpiling are occurring, while similarly the US and the OECD continue building stockpiles ahead of potential supply disruptions this winter. But China demand is also surging due to Beijing ‘s enormous infrastructure projects and spends which are being used to stimulate the economy and is beefing up Oil demand.

However, concerns about demand growth slow down along with the prospect of more barrels  coming online has triggered a sizable reduction in bullish markets structures, the difference between bets on higher prices and wagers on falling priced — dropped  14 per cent to 242,855 futures and options in the week ended Oct. 16, according to the U.S. Commodity Futures Trading Commission.

But there’s a loud level of headline noise that seems to pop up like clockwork, where on the one hand views suggest OPEC can quickly cover the Iran shortfall while conspicuously well-timed documents continue to surfacing claiming that OPEC and its allies are having difficulty boosting production by 1 million bpd as it had promised in June. Sifting through the market noise will present its challenges none the less.

From various industry insider reports, Iran exports have fallen from 2.2- a million barrels per day (m b/d) in 1H’18 down to an expected 1.5-m b/d in October. Saudi Arabia has reportedly ramped production to 10.7-m b/d though. They could go to 11-m b/d and draw down 0.5-m b/d from inventories or even more if needed. (3-m b/d just boosted Saudi export capacity at Aramco’s Red Sea Yanbu terminal. Ras Tanura capacity is well above current export levels.) And Russia still has ~0.2-m b/d spare capacity to reach 11.5-m b/d.

According to industry reports, Canada’s crude production was ~4.6-m b/d in August, with Jan-Aug growing ~280-k b/d y/y, even with Syncrude upgrader problems, which has since recovered. Oversupply and US refinery maintenance have put WCS and Syncrude into a massive   discount WTI  pipeline bottlenecks meaning more and more WSC needs to be shipped by rail with new longer-term rail shipping contracts agreeing to at ~$20/bbl to the USGC

And with Trump’s acknowledging that Saudi Arabia’s findings behind the Khashoggi death were credible, this could offer more opportunity for the US administration to pressure the kingdom to tap its spare capacity resources before the Iran sanctions take effect in November. So, there will be an intense focus on the Saudi Royal family’s relations with the Whitehouse this week, while US Congress will face increasing pressures to block all arms sales and deliveries. All the while  global business leaders continue to shun “Davos in the Desert.”

US-Saudi relationships are vital to maintaining peace in the middle east and must continue, however, the Khashoggi case will give the US leverage and which will likely cause Saudi Arabia to increase oil production if possible. But you know this is not going to leave the headlines anytime soon as most everyone considers the official Saudi explanation as a complete fabrication.

While the supply-demand equilibrium remains fragile, the anticipated impact from Iran sanctions is diminishing as prompt Brent remains in good short-term supply despite growing uncertainty about supply disruptions continue to build down the road.

Gold Markets

Investor sentiment is much-improved from even a week ago on increased portfolio hedges against more sustained equity market drawdown which over the short term,  should give rise to haven demand and boost Gold prices.

But China has rolled out some rule changes to stabilise markets. And while the longer-term effects from these changes amount to little more than putting a band-aid on a broken leg, the generally usually work and have some influence over the short term. Since  China equities are deep in oversold territory, there is lots of room for a bounce in local markets which has clipped momentum in Gold markets as even headlines around Brexit, and the Italian budget was more positive heading into the weekend. heading into the weekend although most traders remain a bit cynical on those fronts

While the upcoming US election will offer up many challenges on US political risk front and support Gold, ultimately however past Nov 6 USD and Fed hiking cycle are likely back in the driver’s seat for bullion pricing. While mainly priced in, the USD could strengthen ahead of December rate as higher US interest rates and a stronger USD could discourage gold investors from pushing the envelope higher unless of course, the equity market rout continues.

Currency Markets

From sandstorms in Riyadh to headwinds in Rome, escalating risk has effectively capped the recent swell in the US in Treasury yields, while the combination of Federal Reserve policy tightening and increasing debt supply should keep the bottom from giving way. But none the less we will bond, and currency traders are left to jostle between US growth momentum and tightening global risk, that should trigger a more significant flight to safe-haven currencies and assets.

Last weeks FOMC minutes reaffirmed the Fed’s hawkish lean and should keep the dollar supported. Markets remain in pins and needles of the Italy budget and Brexit stalemate, but with equity markets volatility on the rise, traders will continue to assess China policy adjustments on Friday to see if the moves will have a sticky effect.

Traders will soon factor in US midterm elections where the tail risk clearly, is a Democratic sweep. Mind you; its anyone’s guess just how economically active GOP tax cuts will be in 2019 while facing a massively ballooning debt. But it is while is more clear-cut that  a Blue Wave tsunami would dent market sentiment and likely push the dollar lower

The Euro

So far ECB policymakers have remained somewhat mute on Brexit, but one would think this divorce will not play out pretty for either the EU or UK economies which might influence ECB policy guidance. But EURUSD is back above 1.1500, reflecting quietening in alarm bells over equities & Italy. Moody’s finally cut Italy’s ratings to Baa3 as expected. Italy’s banks are vulnerable because of the high proportion of the country’s bonds they own, but this was widely expected so no major surprise.

The Canadian Dollar

The CAD miss on CPI has overwhelmed whatever remnants of bullishness I had in the CAD. The shocking miss on the CPI has shattered my confidence on next week’s BoC. Given there are no significant data releases between now and the BoC meeting, its time to stop being so unabashedly bullish on the loonie.

Australian Dollar
There were around $A10B of Australian government bonds redemption on October 21 and given much better yields away, unless so governed to buy Australian Bonds, most of those maturing investments likely funnelled into US or other much higher yielding bonds. Thus, the AUD is holding up well despite a lot of selling pressure last week and could outperform this week provided China volatility continues to ease after mainland regulators policy tweaks on Friday.
Been avoiding trading AUD vs the USD like the plague but given shifting sentiment on BoC policy next week, the long AUDCAD trade could see some appeal early this week.

On the energy front, multiple news sources have confirmed that Australia’s colossal and much delayed Ichthys liquefied natural gas (LNG) plant has started shipments in recent weeks. But comes at a favourable time and could offer some much-needed respite to Australia’s dwindling heavy sweet crude oil production.

The Malaysian Ringgit

It still feels like risk off but with a less weak Yuan and the monetary policy easing story in China playing out well on the SHCOMP. While the mainland equity recovery was positive on the surface, other regional bourses barley blinked as the China market reversal was little more than it a short covering.

In what could best be described as hope for the best but prepare for the worst. Malaysia slashed its economic growth targets and deserted its plans to balance its budget by 2020, not exactly a ringing endorsement for the financial in Malaysia. And with capital gains taxes and other consumption taxes on the horizon, it’s not to difficult to figure out why Malaysia equity markets remain under pressure.

The combination of macro risk off as well as on-shore danger around the upcoming budget will keep the Ringgit trading defensively.

The leak on oil prices notwithstanding, regional risk sentiment remains ever so fragile as any sliver of optimism from US earnings gave way to that reality that trade tension and geopolitical unrest continues to gurgle. There were around $A10B of Australian government bonds redemption on October 21 and given much better yields away, unless so governed to buy Australian Bonds, most of those maturing investments likely funnelled into US or other much higher yielding bonds. Thus, the AUD is holding up well despite a lot of selling pressure last week and could outperform this week provided China volatility continues to ease after mainland regulators policy tweaks on Friday.
Been avoiding trading AUD vs the USD like the plague but given shifting sentiment on BoC policy next week, the long AUDCAD trade could see some appeal early this week.

US Growth in Q3 to Guide Dollar

The US dollar is mixed on Friday. Investor’s appetite for risk rose and safe haven currencies (JPY and CHF) fell while positive China and Brexit news saw the NZD, EUR, GBP and AUD advance against the USD. The Canadian dollar was dragged down in the last trading day of the week after softer than expected retail sales and inflation data. Next week’s Bank of Canada (BoC) monetary policy meeting is anticipated to bring a 25 basis point rate hike. Despite the miss inflation has been above the central bank’s target and businesses are optimistic about strong sales.

  • BoC expected to hike interest rate to 1.75%
  • German Business Climate to cool down
  • US first estimate of Q3 GDP to confirm solid growth

Euro Caught Between Brexit and Italian Budget

The EUR/USD fell 0.41 percent in the last five days. The single currency is trading at 1.1510 after rising on Friday due to a combination of softer US housing data and positive Brexit News. The gradual pace of rate lifts by the U.S. Federal Reserve had a negative impact on previously owned homes in September.

The euro rallied on Friday after a report that Theresa May’s government is ready to drop the time limit demand on the Irish border. The EU and the UK are said to be close to a deal, 90 percent by the estimate of the EU’s top negotiator, but the final 10 has proven hard to agree on.

Italian budget issues continue to drag on the euro. The threat of a downgrade of Italian debt does not seem to faze local politicians that are ready to square off against Brussels.

The European Central Bank (ECB) will publish its main refinancing rate and host a press conference on Thursday, October 25. No changes are expected, but investors need to be aware of the tone of the press conference as Mario Draghi could push a more dovish rhetoric.

Loonie to get BoC Rate Hike Boost

The USD/CAD fell 0.74 percent in a weekly basis. The currency pair is trading at 1.3117 and will look at the Bank of Canada (BoC) for support. The central bank is highly anticipated to announce a 25 basis points interest rate hike. The central bank has lifted rates twice in 2018 and rising inflation is forcing the hand of the BoC.

Canadian dollar weekly graph October 15, 2018

The rate decision has been priced in for some time, but the fundamental picture has worsened reducing the probabilities of a rate hike while still at near 80 percent. The NAFTA renegotiation was a big risk keeping the BoC awake at night, and with the USMCA some of that risk is lifted.

With inflation data lower than forecasted it now validates the gradual approach of the BoC and unless there is hawkish rhetoric from Governor Poloz, the loonie will continue to underperform against the USD.

Oil Drops as US Weekly Buildup Pressures Prices

West Texas Intermediate lost 0.95 percent this week. WTI is trading at $69.36 after staring a rebound on Friday due to surging Chinese demand. Supply concerns continue to guide daily price action. The US weekly inventories showed a buildup last week and pushed prices lower. Iranian exports have been cut ahead of the start of US sanctions, but there are reports that OPEC and other major producers are already closing the gap.

Saudi Arabia is embroiled in a diplomatic scandal and is quickly losing the goodwill it gained for having engineered price stability with the production cut agreement. The OPEC and major producers agreed to limit output to stop the free fall in energy prices and have extended the agreement to this year.

Trade war concerns eased on Friday as China and the US have agreed to meet during the sidelines of the G20 meeting in Buenos Aires. The leaders of the two nations will fly in a day ahead of the event to try and mend the trade relationship.

Gold Rises for Third Week Straight

Gold rose 0.6 percent last week. The yellow metal is trading at $1,229.40 despite gradual rate hike talk by Fed members and the minutes form the September FOMC. The rebound of the stock market correlated with the rise of the yellow metal. Safe haven appetite in gold holdings has returned and in a market with no shortage of geopolitical risk for the remainder of the year the yellow metal is set to continue on its rise.

Market events to watch this week:

Wednesday, October 24
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
11:15am CAD BOC Press Conference
Thursday, October 25
7:45am EUR Main Refinancing Rate
8:30am EUR ECB Press Conference
8:30am USD Core Durable Goods Orders m/m
Friday, October 26
8:30am USD Advance GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Asia Market update : China data


China GDP

The markets continue to shudder as political turbulence ferments, key tier one China data was just released which will offer little solace to risk sentiment as the GDP is 0.1% lower than what was expected by markets. Well, it doesn’t come as much of a surprise Chinas economy is losing steam, but there are worrying sings beyond the tariff effect that are more concerning. Specifically, that on year on year basis industrial output came in significantly lower. But it’s Friday after yet another tumultuous week, and frankly, I doubt anyone has a serious axe to grind at this point other than squaring positions into the weekend.

The Yuan
USDCNY fixed at 6.9387 today, +112 pips from last fixing and -22 pips from the previous closing at 6.9409 on 16:30 Beijing time and way lower than expectations sending the Yuan bears back their cage today. The fixes remain ambiguous and perhaps so my design to keep the market speculators in check that are looking for any signal to push USDCNH to 7

The Malaysian Ringgit

I what could best be described as hope for the best but prepare for the worst. Malaysia slashed its economic growth targets and deserted its plans to balance its budget by 2020, not exactly a ringing endorsement for the financial in Malaysia. And with capital gains taxes and other consumption taxes on the horizon, it’s not to difficult to figure out why Malaysia equity markets remain under pressure.

The leak on oil prices notwithstanding, regional risk sentiment remains ever so fragile as any sliver of optimism from US earnings gave way to that reality that trade tension and geopolitical unrest continues to gurgle.

Between the more hawkish FOMC minutes and the markets finding little comfort in US Treasury FX report, it’s a nasty combination for Asia investors. But things could get worse as the Yuan depreciation train could be arriving at the station anytime soon suggesting regional currency will undoubtedly remain a hostage to the Yuan’s underlying movement which could be a very a disruptive force for local sentiment.

But the fear of capital control slinking its way into BNM policy intensifies the risk of more foreign capital outflows. This possible policy shift is a very significant development and should be closely monitored.

Expect the Ringgit to trade with a negative bias against lower oil prices.

Dollar Higher Amid Uncertainty and Fed Comments

The US dollar is higher against most major pairs on Thursday. The greenback is only down against the Japanese Yen which rose 0.42 percent. Geopolitics and a strong dollar combined to keep stock markets under pressure. The investigation on the disappearance of journalist Jamal Khashoggi, US-China concerns, Brexit, Italian budget comments and the aftermath of the release of the Fed minutes are dictating market moves as investors look for safe haven assets.

The US Treasury Department published its currency report yesterday, and while not outright calling China a currency manipulator it did focus on past intervention and was first on a list of 6 countries on the monitoring list. The language was tougher and the emphasis on the trade deficit signals the current trade dispute between the two nations will not be resolved in the short term. The US and China are preparing talks at the G20 meeting next month.

The news that US Secretary pulled out of the Saudi Arabia investment conference after discussing with President Trump and Secretary Pompeo is seen as a conciliatory move from the administration to politicians who have called for some distance from the Middle East nation. Mnuchin joins a long list of businessmen and leaders who have excused themselves amid the disappearance of Khashoggi.

GBP - Pound Lower as Brexit Shows Sides are too far Apart

Sterling is down 0.63 percent against the greenback. Theresa May is still optimistic a “good deal” can be reached, but the reality appears to show the UK and the EU are too far apart with a fast approaching deadline and the currency market is reflecting that. Earlier the UK PM said that the EU proposal on the Irish border was unacceptable.

The EU and the UK have kept an optimistic demeanour when discussing the divorce with the press, but there does not seem to be that much progress from either side. The best so far have been extensions, and as the DUP party said extending the deadline will not solve the Irish backstop problem.

ECB President Mario Draghi said today that he sees Brexit’s effect as limited for the European economy with a higher risk coming from EU budget rules being challenged.

EUR - Italian Budget Giving Euro Headaches

Italian budget comments from the EU commission pushed Italian bonds lower as the stand off between Brussels and Rome continues. Italian PM Conte will hold a meeting on Saturday to go over the already proposed budget. The EU commission is calling the proposal a “unprecedented deviation” from EU’s budget rules.

The single currency fell 0.29 percent on Thursday against the US dollar. The Italian budget drama put the euro in a corner as the release of the minutes from the latest Federal Open Market Committee (FOMC) and comments from voting and non-voting members support more US interest rate lifts.

CAD - Loonie Under Pressure Ahead of Retail Sales and Inflation

The Canadian dollar fell 0.49 percent on Thursday as Fed rhetoric and risk aversion drove the USD higher. CAD traders will be on the lookout for Canadian retail sales and inflation data due out on Friday. The data is not expected to impress, but rather continue to show a solid pace of growth in the economy validating the upcoming decision by the Bank of Canada (BoC). The central bank is heavily anticipated to lift rates by 25 basis points next week from the current 1.50 percent benchmark.

usdcad Canadian dollar graph, October 18, 2018

OIL - Crude Falling as Suppler Fears Ease

Oil prices had bumpy ride on Thursday. Crude was on the decline at 9am in the morning, but the bounce in US stocks pulled oil out of sessions lows. The bounce did not last long and by 2pm West Texas Intermediate was trading below $69 with Brent holding on to gains a little better at $79.67.

Oil prices are caught between supply concerns triggered by geopolitics and rising stockpiles in the US with a possible supply rise by other major producers. The US sanctions against Iran boosted prices even as the Trump administration tried to convince OPEC members to drive costs down. The latest diplomatic turmoil surrounding missing journalist Jamal Khashoggi puts Saudi Arabia under intense focus from global leaders.

US weekly inventories released by the Energy Information Administration (EIA) on Wednesday showed a larger than expected buildup that further depreciated oil prices. Growth concerns as trade disputes are not resolved have started to impact energy demand even as supply is tighter.

Weather and geopolitics have been the main factors behind supply disruptions, and without a significant change upward to demand, crude will be more sensitive to political events, specially if it’s based on a major producer.

GOLD - Gold Retaking Safe Haven Crown

Gold rose on Thursday as risk aversion gripped the market. The yellow metal is trading higher after reclaiming its place as a safe haven during times of uncertainty. Gold is rising despite the Fed signalling more upcoming rate hikes to the US interest rate, but geopolitical factors are keeping the metal bid.

Gold is trading at 1,229.60 and will head into the Friday session having gained 0.61 percent. The US dollar is expected to keep its upward trend, specially as investors will not want to have short exposures going into the weekend. Gold’s appeal as a safe haven could reduce the pressure from the USD, considering the various geopolitical events playing out around the globe.

Asia market update: a busy session is unfolding

The Yuan

USD bullish sentiment post FOMC minutes outweighs Treasury to report the CNH playbook remains intact and should not provide any is a significant short-term relief for local EM currencies. High US bond yields and a rebounding US dollar continue to pose substantial headwinds.

The Yuan fix came in at 6.9275 vs 6.9235 but +30 higher than market estimates. Given the focus on all things Yuan, it has triggered a call to action for Yuan bears who have promptly paid the USDCNH market above 6.935 level during the opening salvo. The higher fix combined with no bounce in China risk sentiment post US Treasury FX Report does provide some ammunition for CNH traders to push the USDCNH envelope higher. Expect the near-term battle line to get drawn between the critical USDCNH 6.94-95 level.

Regional equities market

Taking their lead from an unsettled close in US equity markets, local markets are trading with a negative bias as risk aversion continues reverberating across ASEAN bourses. President gone postal, escalating US-China tensions and a stronger USD will pose considerable headwinds to local equity markets. Unlike yesterday rally where participation was relatively light, early volumes are looking robust suggesting investors continue to probe markets downside where more significant tail risk remains.

Australia jobs report

AUD jobs data far from a game changer +5K offset by fall in participation but UE rate still decent so confident on the margin. But given the volatile nature of this report, the data will carry a limited impact on RBA policy. With US-China tension staying on the boil AUDUSD markets remain better offered than bid.

Malaysian Ringgit and Oil prices

Oil prices are leaking lower; the Malaysian Ringgit should underperform at the margin today or at minimum trade with a defensive posture. We do not see any discernable bounce in local risk sentiment as the markets prepare for capital gains and consumption taxes.

Bank of Korea 

The Bank of Korea leaves 7-day Repo rate unchanged at 1.50, but we wait in vain to see if this is indeed a hawkish hold. But USDKRW has moved back above the 1130 level as fast money speculators pile in after the BoK decision to hold rates. We wait to see if the central bank will provide an evident signal for a hike in the next 1-2 months. The press conference begins at 10:45 SG time.


Gold continues to find a bid in early trade as local traders are a much better seller or risk. But with the dollar breaking below the critical 1.1500 EURUSD level near-term bullish sentiment will be tempered but given equity weakness gold is looking increasingly attractive as a defensive hedge.

Risk Aversion Lingers

Risk Aversion Lingers

It was a shaky day for US equities, but the broader indexes did manage to claw back from the depths of despair but still ended the day slightly lower only 24 hours after the most substantial gains in 6 months and reminding us just how fragile investor confidence is.

Risk aversion continues to permeant across global markets. While Oil prices were leaking everywhere (blame inventories), industrial metals also trade on a soft note. While there isn’t one reason, but there’s a sense of foreboding in the air. that the next US equity correction could be the ” big one.”

President has gone  postal 

But I’m looking no further than the President ratcheting up the rhetoric by ” going postal ” on China. Indeed US-China tensions are back on the radar, particularly with NYT suggesting Trump’s next target will be China’s cheap postage services. But the headlines aren’t much better in Europe which is intensifying investor jitters. There is zero expectation for a Brexit divorce agreement coming out of EU Summit while Italy budget is widely expected to be rejected by the EU. Late NY headlines from Reuters say that EU leaders are dropping plans to hold a November 17-18 summit for now – they are ready to meet again “if and when” the EU’s chief negotiation reports that decisive progress has been made in negotiations. An amicable Breixt divorce has certainly taken another significant hit.

The Greenback 

The USD rallied Wednesday, reflecting two forces: unwind of the prior two sessions of US weakness as USD haven flow picked up, and FOMC minutes which confirmed the Feds would continue to normalise rates for the foreseeable future.  This was the tail risk going into the minutes as some market participants thought the FOMC would walk back some of the markets more hawkish interpretation of Jay Powell post rate hike presser.

US Treasury FX Report 

Though released a little later than expected, the US Treasury’s semi-annual report on currencies was mainly in line with what was leaked to the press late last week: once again, no trading partner was named a currency manipulator. Moreover, the same countries – China, Japan, Korea, India, Germany, and Switzerland – were on the Treasury’s monitoring list.

Though China was not explicitly named this time, this report however materially escalated its language against China – in four significant ways.

1) The executive summary focuses on China’s history of unfair trade practices
2) China had their section while everyone else was grouped into another
3) The Treasury will review the RMB in 6 months
4) But the one major caveat is, and something the markets were suspecting all along. ” “as a further measure, this Administration will add and retain on the Monitoring List any major trading partner that accounts for a large and disproportionate share of the overall U.S. trade deficit even if that economy has not met two of the three criteria from the 2015 Act”.

The report comes out in line with market expectation and gives the markets another six months of breathing room. Hopefully, US-China can make some headways on the trade front. But giving China their section in the report suggests that the US Administration is ready for more punitive response China should discussions between Trump and Xi fail to yield results at next months G20

I guess we can breathe, at least for now, a temporary sigh of relief as we await the President who no doubt chime in on the US Treasury findings.

Oil Markets

A sizable shocker into this week more definitive EIA Weekly Petroleum Status Report which has sent Oil markets spiralling lower  amidst some concerning development for Oil bulls

The DOE data for last week significantly more bearish than Tuesday’s American Petroleum Institute report, with crude stocks increasing 6.5 million barrels per day. This is particularly dispiriting on two fronts: (1) markets had positioned for last weeks bumper inventory report to retrace (2) API on Tuesday suggested we would see a draw.

However, Petroleum prices were testing the downside in London and early New York before the inventory data even after a Tuesday report from the American Petroleum Institute. The de-escalation in US-Saudi tension suggested the market was very prone to a downside correction on any inventory build.

So, for today at least it could be a case of how low prices will go rather than how high.

But given the Iran sanctions and uncertainty around the spare capacity debate $80 Brent should provide solid support, but oil bulls have considerably less breathing room than they had yesterday.

Gold Markets

The US dollar refuses to stay down for the count which saw gold prices fall to the bottom of recent ranges. But the enormity of the significant tail risks around the US midterm elections, and escalating pockets of geopolitical angst still make gold appeal a favourable tail hedge against these escalations. Despite the FOMC minutes cementing the Feds rate hike view, the US midterm elections to pose a significant headwind for both the USD and US equity markets as such Gold should remain a favourable hedge over the short term

Currency Markets

Nothing else matters but the RMB

Chinese authorities are a lot more sensitive about the RMB on a trade-weighted basis rather than on a bilateral basis against the United States, and with the markets trading at the bottom end of the CFETS basket range, there will be more focus on the basket after two specifically odd fixes towards the end of last week. So, the debate rages if last week is a signal for a shift in policy. If authorities decide to let this CFETS level go, it will open a massive can of worms that should see USDCNH rocket higher and will have a positive knock-on effect for the USD.

Regardless of which direction the USDCNH moves the RMB will remain at the epicentre of currency markets and will drive the near-term direction of the dollar.

So, for local ASEAN currencies, I suspect they too will be held hostage to the RMB moves.

Asia market closing view: fumbling into the EU summit


Currency markets have been relatively quiet in Asia ahead of the US Treasury FX report an no doubt markets will be eager to view the FOMC minutes where there is a considerable risk for a hawkish lean. Even more so after the subtly hawkish warm-up ahead of tonight’s FOMC minutes delivered by San Francisco’s new President Daly which is creating some noise today but turnover light. Long USD is not my base case view given the upcoming US elections risk, but a hawkish affirmation of Fed policy in the minutes will probably send the dollar bears back to their cages for the rest of the week and provide a boost to US dollar sentiment.


Gold prices have reversed earlier losses as the enormity of the significant tail risks around the US midterm elections, and escalating pockets of geopolitical angst make gold appeal a favourable tail hedge against these escalations. But on a near-term break of the signification $ 1234-1236 zone and given the bearish Hedge Fund compositions and structures on the Comex will come under intense pressure and we could see $1250+ in a heartbeat if these established short positions show signs of buckling.

Oil prices 

Oil prices have been steady in Asia but remain primarily supported Iran sanction as traders await the final EIA weekly petroleum status report due out later in the US session.


Not too surprisingly the effervescent bounce back in Asia equity sentiment has cooled as markets fumble into the EU summit But the enormity of global risk suggest the isolated US growth theme will come to an end like synchronised global growth theme, at least until US-China trade dispute is settled. On the trade war front especially, it’s too early in the game to build up Asian equity position with that enormous weight hanging over market sentiment.  Although markets did rebound in Asia, participation an turnover was that big.

But with FANNG earings showing a solid result yesterday, US equities should hold up ok today.

US Treasury FX report 

There may be too much overconfidence due to the recent equity market meltdown, that the President will accept the US treasury decision not to call China a currency manipulator. There’s a significant tail risk if the President doesn’t recognise the US Treasury findings at face value which should see the RMB complex sell off and equity markets buckle as trade war tension by implication will rocket significantly higher.


While avoiding all the headline bluster as much as possible, regardless I do not think the market will adjust their Brexit view until it is an obvious done deal because it is hard to PnL fissures to due headline risk. For some, that that will keep them sidelined but for those wearing UK risk or the few brave souls considering entering the mix, it could result in one of those rare home runs in both currency and rates markets for the not so meek of heart. This is as close to a real money dream set up as you can get in today’s market

President Trump 

US President Trump is out with another headline, which is creating some financial markets waves. “My biggest threat is the Fed,” Trump said on Tuesday during an interview with FOX Business. “Because the Fed is raising rates too fast, and it’s too independent,” he complained. Of course, nothing new but this noise does tend to make market participants extremely nervous when the Presidents do question the Fed mandate while wading into waters Presidents have typically considered out of bounds, specifically the Federal Reserve Boards independence.

But in the all too familiar good cop, bad cop routine is back in play. The frequency Fed-bashing has increased in recent days. US Treasury Secretary Mnuchin has also tried to comfort market participants at times by saying Trump respects the independence of the Fed.

Asia market update: Focus on Yuan

You just know that something good is going to happen

Fed minutes eyed as markets recover

Fed minutes in focus as markets rebound following sell-off

US futures are trading slightly in the red on Wednesday, paring gains from the previous day as risk appetite continues to improve.

A decent rebound in the US on Tuesday on the back of strong earnings numbers has gone some way to allaying fears about last week’s sell-off. The results are a timely reminder about the strength of the US economy right now and despite the large amount of underlying risk that still exists, investors have plenty to be optimistic about.

Considering the fact that a major contributor to the sell-off appeared to be rising US bond yields – which have come off as risk appetite has returned – today’s FOMC minutes should be very interesting. Given the events of the last couple of weeks, there is a chance that the minutes are a little outdated, but that won’t stop people pouring over them for clues about where exactly we are in the tightening cycle and how much further there is to go.

Little hope for Brexit breakthrough at EU summit

Powell was a primary catalyst for the spike in yields a couple of weeks ago when he declared that we’re not yet near the neutral rate and could go beyond, which flies in the face of the belief of many that we’re in the latter phase of the tightening cycle. It will be interesting to see whether others share the views of Powell, although we may be better informed by the comments of the many policy makers that are speaking this week, including Lael Brainard today.

May heads to Brussels as patience wears thin on both sides

For the UK, this week may be dominated by what’s happening in Brussels but the current state of the economy will also be a focal point for traders, with today’s CPI data being the second of three notable releases.

UK CPI Inflation

Inflationary pressures moderated once again in September after a brief summer spike that accompanied a surge in activity as consumers made the most of the good weather and the country’s unexpected World Cup success.

Dollar in holding pattern; Asian equities follow Wall Street

The return of grey skies and dark evenings has been a timely metaphor for the mood in Brussels right now, with good will wearing thin and the two camps becoming increasingly hostile towards each other despite only a small number of issues remaining. Theresa May heads to Brussels today in the hope of bridging the divide over these issues but any agreement this week is extremely unlikely with attention now switching to an emergency summit in November.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

Dollar Lower After Retail Sales Awaits FOMC Minutes OANDA Market Beat Podcast

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Asia Market update : A time out

China Data

China CPI data came out bang on market expectation while the PPI rose slightly 3.6 % versus 3.5 % but continues to trend lower despite weaker Yuan and tariff price pressures. But given the delta to expectations are negligible there isn’t much of trade to be had on the data.

Regional equity markets

Regional markets are trading more positively this morning as overall regional volatilities are falling. A weaker US dollar profile is helping to cool depreciation pressure on the Yuan as overextended shorts are getting pared. Don’t confuse this recovery with anything other than consolidation amidst a protracted downtrend in Asia equities. Traders are looking to sell upticks given that intraday volatility can ignite on the drop of a dime.

While neither new or original for that matter and with discussions centring on market uncertainties the topic of China infrastructure spending is making the rounds yet again.

Since additional monetary easing could trigger a run on the Yuan; there’s more chatter that China will move back to its old habits of pumping up infrastructure spending to boost economic growth as Beijing is preparing to pull out their old stimulus playbook.

But overall a quiet start today in the wake of an unusually quiet Monday in US market.

Oil markets

Oil bulls are latching on to falling Iran export data which showed the country’s exports fell even further during the first half of October. Which gives rise to the spare capacity ” proof is in the pudding” argument that until supplies are made quantifiably available, given Venezuela and Iran shortfalls, that squeeze in supply should be enough to support Oil prices until proven otherwise. With so much noise in the market, traders top side ambitions could temper ahead of this week’s US inventory data sets.


The US Dollar 

Dollar bulls still fear we are little more than a Jay Powell headline away from sending the dollar into full out retreat. especially if he or this week FOMC minutes do walk back the hawkish market interpretation from the last policy meeting.

The Yuan

The USDCNH remains in a very tight range with overnight funding getting extraordinarily liquid, but the forward curve remains under pressure as traders continue to unwind some of the USD paid in forwards on a carryover from the slight de  escalation of USD-China tension on the back of Trump -Xi meeting and a softer tone for the Pboc at the IMF in Bali. However, USDCNH remains bid on dips below 6.92 despite today’s CNY  fix at 6.9119 today, -35 pips from last fixing and -151 pips from the previous closing at 6.9270 on 16:30 Beijing time. But well in line with market expectations.

With lower CNH vols comes some breathing room for local EM as the Won is making significant headway after the softer US retail sales print. In the absence of strong US economic data for the USD to anchor too, it continues to struggle but EM risk is fraught with peril, and I suspect this is more of a case positions squaring rather than bullish bets put on the table.

New Zealand Dollar

NZD CPI has overshot expectations: +0.9%QoQ for Q3 versus 0.4% prior and 0.7% expected. The RBNZ forecast stood at 0.4%. but taking the gains from energy out of the equation but with very mixed signals on the USD appetite to fade the move has been muted as dollar bulls remain nose-ringed to this weeks FOMC minutes

Risk remains on the back foot

Daily Markets Broadcast – 2018-10-16