Headline nonsense
The advent of headline reading robots is changing the market place and likely causing capital market traders to react first and fact-find later for fear of missing out. So with the volumes of spurious headlines over the last 24-48 hours, the challenges now facing traders in the age of information overload is assessing the wheat from the chaff when it comes to ”fake news.” But unfortunately, these factious headlines are becoming all too commonplace in 2018.
Oil
Brent climbed to the critical $70 per barrel for the first time since 2014 and oil is having its usual far-reaching influence on cross-asset markets as Wall Street soars to new record territory.
The market was caught a bit short when Suhail al-Mazrouei, UAE energy minister and current OPEC president, said Thursday that OPEC remains “committed to maintaining strong compliance.” which spurred a wave of short covering rather than topside buying.
By all appearances at the future open, the market is showing signs of finally succumbing to that anticipated correction.
Gold
Gold put in another strong showing after the Hawkish ECB minutes weighed on USD sentiment. But there appears to be a broader move afoot as the USD/JPY zeroed in on the critical 111 level amidst BoJ tapering speculation.
Indeed, the weaker dollar narrative amidst increased demand for equity market hedges suggests the near-term outlook for gold is glittering.
Euro
The euro exploded higher after a hawkish glean from the ECB minutes caught traders flat-footed as most had shallow expectations from the release. But as usual, when it comes to Mario and gang its best to expect the unexpected, especially when fissures within the ECB board are starting to appear.
As usual, traders couldn’t help but trip over themselves getting topside exposure at the thought of catching a significant policy shift. The Euro Bulls are now banking on a possible change in ECB language as early as March.
Of course, this feels like ” Deja Vu all over again” as traders consider the merits of parlaying the minutes versus another dovish surprise from Draghi. But with the bullish fundamental narrative solidly intact, it’s hard to argue against warehousing some form of euro proxy trade on the back of the ECB’s apparent hawkish shift.
Canadian Dollar
Speaking of fake news, after the imminent demise of NAFTA was denied, the loonie had retraced about 60% of yesterday’s panicked move, but the fact it has not fully recovered is probably due to overextending shorts ahead of the Bank of Canada announcement. In a WSJ interview this morning, President Trump reiterated he would terminate NAFTA unless he gets a fair and “Trump deal” but added to “leaving it a bit flexible” until after the Mexico election. Predictably USD/CAD gapped higher some 35 pips in low liquidity before coming back.
Japanese Yen
Given the general dollar malaise, USD/JPY is struggling against the backdrop of BoJ taper overhang and another strong US 10 year Treasury auction. The bid to cover ratio came in at 2.74, which is the highest level seen since December 2014. The markets were convincingly dollar-offered overnight, but so far in early trade, APAC traders are showing a higher propensity of cover shorts heading into the weekend probably looking to put this silly week of headline hullabaloo in the rearview mirror.
Australian Dollar
The Aussie dollar benefited from of all things iPhone sales after the release of data showing better-than-expected retail spending in November.
The currency continued to gather steam overnight influenced by external drivers as the weaker US dollar and surging commodity prices led the charge.
Asia FX
Thankfully local EM FX traders remained calm while doubting the validity of the China treasuries story and were rewarded for their patience when China’s FX authority SAFE was quick to castigate those reports as ‘false news' and predictably USDAsia sold off in tandem with US Bond Yields.
Yuan
Regional currency markets are finding themselves in a much happier spot this morning with USD/CNH trading sub 6.50, unwinding both the Treasury headline nonsense and Counter-Cyclical squeeze.
Ringgit
The ringgit made the highlight reel once again after a substantial industrial production number yesterday which cemented the markets BNM rate hike view. While we’re likely to enter a healthy correction on oil prices, WTI is at such a lofty level, and any sell-off is unlikely to have any sustainable adverse effect on the MYR.
Fed Speak
A late NY speech delivered by Dudley is attracting some attention as he sounds very optimistic regarding the US economy reaching its inflation targets but doesn’t expect “transitory” factors to fade out until after Spring 2018. USD/JPY came off the 111.05 low, but there was little significant broader based USD impact.
Cryptocurrencies
The barrier for Bitcoin to be considered a viable asset class continues to mount. The threat from increased regulatory oversight in the wake of South Korea imposing a ban on Crypto trading could spread and severely dent sentiment. But also the excessive volatility makes trading Crypto coins a fool’s errand with only two discernable strategies investors are apparently using. 1) Buy on dips, sit on your hands and hope it rises or 2) Sell at the current tops and pray it fall. This is probably not a quantified methodology for managing risk and suggests the product in its infancy will not be sold as a viable investment grade product by major investment houses.