A busy start to today's session dealing with yet another mini TRY flash crash as the bad Turkish lira news continues to compound. Otherwise, global FX and fixed income markets remained in neutral overnight and predictably focused on the upcoming FOMC minutes.
The Turkish lira meltdown, as far as I can tell, was little more than a liquidity crunch reminding the EM FX space again just how weak liquidity is during less than ideal times. As usual, the predictable fall out from the TRYJPY carry trade has kept my desk hoping this morning.
President Trump was keen to remind us overnight that the trade war is not about to leave the stage anytime soon, declaring he is “not pleased” with the results of China trade but sees them as “a start.” This then triggered a subtle risk reversal on US equities, leaving investors rudderless and prone heading into today’s Asia session.
Oil Markets
Oil prices had taken a respite although their far-reaching implications across asset classes most likely contributed to denting equity sentiment when Washington suggested oil prices have gone too far. With US gas prices jumping to 3 dollars per barrel in the States ahead of peak driving season, the political backlash, not to mention the likelihood of surging oil prices sapping some momentum from the US economy has caught the US administration's attention. Which of course puts more focus on OPEC's Vienna Group decisions on whether and when to increase production in response to the latest supply shocks from Iran and Venezuela.
Gold Markets
The US dollar continues to drive the gold bus as a short covering US dollar rally has tentatively lifted the gold bulls spirits. But the market remains mired in no man’s land as the break fo 1300 did create enough of a fire sale to shock gold market into submission. The markets will not shift to the FOMC minutes for inflation updates as any suggestion that the Feds do see a pick up beyond their 2% target could be interpreted bullishly for Gold which should find support as an inflation hedge
Currencies
EUR: challenging for the euro to avoid the excessive noise around the Italian political scene but the focus remains on the FOMC and ECB statement.
JPY: USDJPY is coming off rather aggressively this morning as more disclosures have been noted from PM Abe stemming from the Kake school scandal. Attention remains focused on the Nikkei which is cratering this morning and triggering some interday USDJPY stop losses below 110.75 in this mini-meltdown. Liquidity has been thin post TRYJPY meltdown, so this could be exacerbating moves, but we should expect some ” bargain hunting below 110.50 to keep the movement contained at least for the short term
MYR: Profit taking on the broader USD with US bond yields remaining stable has improved local ringgit sentiment. However the market is in desperate need of fiscal clarity, and this fact alone will hold foreign investors at bay despite some desirable levels on both bond and currency markets. Despite foreign investors shying the local markets, domestic funds have been significant equity buyers which continues to underpin domestic sentiment.