Asia Equities
China inflation data continues to provide an unwelcome distraction to the great Fed debate. But the move could be exacerbated by downside banking sector hedges ahead of the July 12 when U.S. Courts will announce a verdict on SPD, Bo COMM, and China Merchants Bank.
Gold
Goldhas felt heavy in today's Asia session. The market still expects a rate cut from the FOMC in July, though not as aggressive as was initially expected. Central banks' appetite for gold continues to provide strong support. But with dollar demand looking set to kick into high gear, it does feel like we're entering a near term crossroads for gold markets.
Gold is still my most committed view even though some doubt and skepticism are leaking into the frame due to the less dovish Fed.
I expect prices to stay on an upward path as central banks pivot to an easing stance, the US dollar turns gradually weaker with a more dovish Fed and the burden of negative yielding debt rises.
Oil
With all the Fed policy uncertainty and dueling narratives as bullish headlines about tensions in the Middle East and bearish headlines about the global economy compete for attention, volumes remain remarkably moderate, suggesting that traders are fed up having their views interrupted by headline chasing fast money accounts.
Despite the bounce from the inventory data, prices could fall under pressure again as traders get increasingly concerned as to what kind of negative demand surprises might lurk when OPEC and the International Energy Agency release their monthly reports on the state of the oil market this week, on Thursday and Friday.
But the prompt WTII contract could also find support as a tropical depression is expected to form late on Wednesday or Thursday, according to the National Hurricane Center, and move westward across the northern Gulf of Mexico, home to dozens of oils- and gas rigs.
Currency markets
USD
USD remains well supported boosted by an upbeat growth speech from Fed Harker. With interest rates so low which are sapping the volatility out of g-10 currency markets, its growth differential that should drive the currency bus does not interest rates.
But ultimately, it's the dollar that could seal the fate of many cross assets, so a lot is riding on the upcoming Fed policy guidance.
Mexican Peso
The Mexican peso continues to struggle after Finance Carlos Urzua resigned, citing the lack of sound economic rationale on public policy. Urzua was as a reputable supporter of President AMLO's promise of sound austerity measures. But the appointment of Sub-secretary Herrera is a market-friendly choice and will take some sting out of Urzua resignation. But it is proving challenging to fade the move with the demand for US dollars dominating flow across the board.
Canadian Dollar
After quickly dismissing the bounce higher in oil prices, the Canadian Dollar continues trading purposelessly within a tight 1.3110-13140 range as traders are finding the markets both problematic and tedious knowing that the proximity of a massive option strike at 1.3100 sits in the way. For the most part, Loonie traders remain sidelined ahead of tomorrows Bank of Canada policy meeting and while no ones are expecting a policy move, the risk is skewed for a hawkish nod in response to the better than expected data flow over the past month.
Australian Dollar
The Aussie has been sold down to .6920 on the tepid inflation signals out of China as downward momentum follows through from the miss in the NAB business indicator.
The Hong Dollar
As expected, HKD funding continues to normalize this morning and the USD/HKD is predictably firming up on the back of the stronger USD.