US equity markets are slightly higher as Trade worries subsided. This despite a volley of tweets from President Trump threatening Harley Davidson (NYSE:HOG) with import taxes on any motorbikes built in Thailand.
And the US dollar reasserted itself as the dollar bulls ran wild in the china shop overnight. While oil prices soared after State Department official indicated the US has no plan to issue oil waivers under Iran sanctions, calling for allies to cut Iran imports to zero tolerance. But without the oil gusher, markets would have closed lower as investors sentiment continues to wane as trade wars continue to percolate.
The only thing I can think of that is more iconic Americana than apple pie is Harley Davidson. So, after the President's recent twitter trade tirade directed at the iconic motorcycle manufacturer, it cements the view that friend or foe, no one is safe from the wrath of the US administration's America first trade policy.
Equity markets are finding themselves in a real quandary. The US economy is healthy as it stands and earnings are significant, but investors are caught between a hammer and anvil on escalating trade wars. But one thing that is very consistent is the FANG performance as any trade induced thrashings gets quickly faded. Netflix (NASDAQ:NFLX) aside which is dealing with internal issues, Apple (NASDAQ:AAPL) was back on the move after bargain hunters snapped up tech shares.
Oil Market
Oil prices were flying higher overnight after catching an updraft from the US administration calling for allies to cut Iran imports to zero tolerance. While this shouldn’t be considered a huge surprise, the confirmation was enough to send prices surging.
But prices were firming after reports of a Libyan dispute over the control of oil production between the internationally recognized National Oil Corp. based in Tripoli and the competing National Oil Corp. based in Benghazi after Libya's National Army militia leader Khalifa Haftar handed control to the Benghazi based organization on Monday. Based on recent history, Libya will continue to be a significant point of concern in the oil supply chain.
And the market continues to focus on Syncrude Canada where 350,000 bpd remain in limbo after a transformer blew and shut a critical oil sands upgrader on June 20. Though still in damage assessment mode, it looks like the end of July estimate for repairs. This closure should lead to increased shortages in North American supply and deplete vital inventory supplies in Cushing. And helping this view along nicely, API reports a major crude draw 9.228 million barrels of the United States crude oil inventories for the week ending June 22, well above analysts’ expectations.
Gold Market
All that glitters is indeed not gold, but rather the US dollar is the shining star. The stronger dollar continues to assert its presence as one of the primary safety nets as trade wars percolate. A stronger dollar coupled with relatively stable US equity markets overnight forced gold hedgers and long-term speculators to pull off the bid as gold continues to melt lower. While trading off intraday lows, speculators should continue selling into rallies. The break of the key 1261 has speculators now peeking at the December lows of 1236.25.
Currency Market
The China currency bears have finally woken from hibernation as deteriorating US-China trade relations, and concerns about China economy have untethered the dollar bulls who ran wild in the china shop overnight. And indeed, driving the broader dollar sentiment not only in Asia FX but G-10. If yuan weakness continues, the spillover effects into the ASEAN basket could be a massive case for concern as there are hugely significant breakouts on EURCNH and CNHJPY. The big question remains with the Shanghai Composite down 20% year to date and US-China economies diverging, will the markets get a more dovish response from the PBoC. But with no protests from the PBoC who are letting the market forces dictate the pace of play. Which get 2 thumbs up from this trader!
With the CNH and gold trading at current levels, I can’t help but think the dollar should be trading at firmer levels. However we still have the month end rebalancing act to get through so this will add to a bit of uncertainty into the decision matrix.
EUR: Political risk and negative EUR differentials to the USD should see the euro move lower after a technical correction of sorts. But short EURJPY should be the best expression to capture escalating global trade war.
AUD: USDCNH, the domestic housing storyline, dovish RBA and economic slowdown in China suggest much lower AUD levels to come. Positioning should be much cleaner after the technical correction last Friday which should see AUD test the .7350 standard sooner rather than later
MYR: With the USDCNH breaching fresh highs and triggering waves stop losses, it's not unexpected that the USDMYR is trading higher in sympathy with the yuan weakness, but higher WTI prices are certainly buttressing a great deal of this negativity. However, all this is getting little support from foreign interests who are looking for a more significant fire sale, and with local markets under tremendous stress from capital outflow and the prospect of escalating trade war, indeed the path of least resistance appears higher with the next key focus on 4.05 USDMYR.