Markets
The S&P 500 finished a bit higher on Wednesday as investors sifted through a mixed batch of earnings reports, heavyweights Caterpillar Inc. (NYSE:CAT) and Apple Inc. (NASDAQ:AAPL) rallying helped boost gains. But an ugly warning from Texas Instruments (NASDAQ:TXN) with some alarming commentary about visibility and client demand continued to weigh on risk sentiment. TI is generally viewed as one of the U.S. tech sector's bastions of stability.
This comes as a bit of a shock to tech stock investors, suggesting a high degree of apprehension continues to resonate as we move through earnings season.
As the U.S.-China drags on hogging the lion's share of the trade deal limelight, China is actively building alternative trade bridges. Negotiations on the Regional Comprehensive Economic Partnership (RECP) are progressing well, with Japan throwing its weight behind the discussions to get the deal signed up by the ASEAN summit in Thailand in November. This ambitious venture comes as a breath of fresh air to regional sentiment, but the goal is to foster better trade ties between regional powerhouses like China and India.
Brexit remains of great concern, and though few developments materialised last night, the market is maintaining confidence a deal will be coming. Traders are still awaiting the EU decision on whether it will grant a delay until January 31, and under what conditions.
No change is expected for the ECB as the recent policy measure hasn't had time to take full effect, but the market continues to expect a final ten basis point deposit facility rate cut in December. There is a whole lot of "feel good" priced into the curve as no-deal Brexit and a messy escalation in the U.S.-China trade war tail risks have diminished. The troubling part now is the waiting game process to gauge if the Global PMIs turn and consumer confidence bounces. If not, the market may quickly price in the view the deals are coming a day late and a dollar short.
Oil Markets
WTI had a look above $56 a barrel for the first time in almost a month after a surprise draw in U.S. oil inventories and coming at the most critical time to stabilise markets which were obsessively stalking demand fears. But importantly for oil markets, the EIA report may be an indication that oil demand is not as bad as a current dreary run of global headline macro data might suggest.
But a day in the oil market would not be complete without its usual twists and turns. Earlier in the session oil prices buckled after the Russian Energy Minister said that no OPEC+ participants had proposed changing the current level of output contradicting earlier media reports. In a market starved for good news, it's impossible to ignore OPEC's jawboning even if it's of the "sources said" variety.
But what is encouraging none the less, and even if the messaging is coming via unnamed sources, is that OPEC continues stressing a whatever it takes approach to support oil prices and to ease market concerns about softening oil demand.
Gold Markets
Gold remains supported by the Brexit uncertainty, but gains towards $1495 are getting offset by positive U.S.-China trade developments.
A range trade mentality continues to envelope short term gold traders’ minds while strategic buyers sit biding their time willing to buy gold on dips.
The direction of the U.S. dollar could provide the next short term catalyst, However, with so much of the dollar direction getting attached to Fed forward guidance, unless there are some significant trade news flows it's unlikely any big gold moves will happen to until we clear the next FOMC meeting.
Currency Markets
G-10 FX
With the October FOMC fully priced in, news flow probably light on U.S.-China trade front until November 15, and Brexit risk retreating from markets – G-10 volatility continues to drop.
However, with so much of the dollar direction getting attached to Fed forward guidance, it's unlikely any big currency moves will happen to until we clear the next FOMC meeting. So, over the short term, I would expect G-10 pros to be as equally comfortable trading the dollar from either side of the risk on risk-off coin ahead of Fed's rate decision.
ASEAN FX
USD/CNY sold off very aggressively into the close taking USD/CNH along. The stronger yuan close is likely attributed to the improving regional news flows regarding RECP.
But it's becoming increasingly difficult to hold a solid conviction one way or the other as the calming trade talk remains positive for yuan, but the economic realities might come back to haunt any bullish ambitions.