Markets
Another patchy session on Wall Street overnight as despite the recent bearishness regarding US-China tensions unwinding, the market is back fretting about global growth after the ECB painted a less than rosy picture about the Eurozone economy while expressing grave concerns about economic growth slowdown. Mario Draghi didn’t even attempt to blur the lines when he suggested the balance of risks to the euro recovery was tilting to the downside, in the face of protectionism and political uncertainty.
Indeed, even though the Eurozone runs a large current account surplus, foreigners have been substantial net sellers of European equities and the Euro for that matter for those specific reasons.
Oil Markets
The petroleum markets have turned higher again in New York trade testing above the $53 WTI, amid the ongoing debate whether last week’s OPEC+ production cuts for 2019 were enough to support a price recovery.
While tirelessly crunching the latest IEA data, traders are focusing on a couple of critical assumptions.
The International Energy Agency monthly report provided another viewpoint, with its 415,000-bpd downward revision to non-OPEC supply for 2019 raising its projected call on OPEC crude oil to 31.7 mmbpd.
Also, the possibility of unplanned outages resulting in a broader drop in OPEC supply, with Iran and Venezuela, not surprisingly topping the risk list. Its thought these possible outages could effectively double down on the OPEC production cuts from last week.
On a separate bullish fillip, unnamed sources suggested Saudi Arabia is set to target the US with an acute export cut. After swamping markets with oil in November, OPEC is serious about reversing the supply glut while risking the ire of Trump on this one.
Interesting, this curious announcement comes on the heels of the US having its first taste of energy independence since 1940 after when US oil moved into net export territory last week.
But indeed, it’s a fickle market, and I suspect it won’t take much to wipe that bull smile away in a hurry given that risk sentiment can pivot on a dime on any negative trade headline. US-China trade war has been a huge negative for global growth. And by extension oil prices as well.
Gold Market
USD remains an essential driver for gold price action so Gold prices pulled back from the top of recent ranges as the dollar gained against the EUR after a slightly dovish ECB statement.
And despite a slightly more positive outlook on US-China trade, Gold should hold a bid into next week FOMC as bullish tactical plays come to the fore expecting the Fed to wax dovish and send the dollar lower. This view is supported by the plethora of recent dovish comets from the Fed
Again few clear signals as we move into Asia trading session but I suspect position squaring will dominate today price action.
Currency Markets
Euro
The ECB was entirely in line with expectations. All boxes were ticked: rates left unchanged, the asset purchase program would come to an end this month and monetary policy guidance was left unchanged as “at least through the summer of 2019”. The ECB also noted that it would fully reinvest QE proceeds for an extended period after the first-rate rise. The Euro fell but is trading off overnight lows as trader’s position for December FOMC meeting which does undoubtedly offer up a cunning opportunity to express bearish USD views after an expanded chorus of Fed members, including Jay Powel, have been lyrically dovish.
Forget the ECB who checked all the expected boxes, what’s critical for the EUR near-term sentiment is Friday’s Eurozone PMI numbers. The most important driver for the EUR has been weak EU economic growth so any positive glean for today EU PMI will be seized upon instantly as a definite shift in this growth metric is the most important signpost for the Euro.
Japanese Yen
Volumes are very low in USD/JPY suggesting it remains a very low conviction trade. While differentials look attractive but let’s face it, rate differentials have been an inferior driver of FX throughout the year. Cross Yen continues to trade well on the back of positive US-China developments.
The Malaysian Ringgit
I must admit I’m a bit surprised the Ringgit hasn’t traded with a more positive bias as US-China trade tensions improve while the local unit should find support form a probable Fed pause in 2019. Indeed caught in year-end malaize with local investors now fretting over oil markets 2019 outlook.