Asia Wrap
US-China trade talk developments continue to dominate headlines. On the back of see-sawing news flows price action remained on a roller coaster ride. But as London gets set to take the book, markets can't decide up or down after the latest meal of who said what why and where regarding the trade talks or Brexit for that matter.
Reports that the U.S. is considering a currency pact in a partial trade deal, and that President Trump will allow some U.S. companies to supply Huawei Culture Co Ltd (SZ:002502) has been kind for ASEAN risk sentiment today.
A Bloomberg headline rehashing a previously proposed bilateral currency agreement between the U.S. and China spooked hedged USDASIA and saw the Yuan rally to a critical support level 7.10 but then rebounded off the lows as optimism for an imminent US-China trade deal continued to waffle.
Currency related trade war headlines have been conspicuous by their absence. And as per the Yuan reaction, it appears a currency accord was not even remotely factored into the price. But before jumping, it takes two to tango, and unless both partners are in sync, they will end up tripping over one another, and the market then ends up wearing the brunt.
If you don't expect to find a trend beside volatility, then you should be fine as the market will continue to fidget around the China /U.S. trade meeting and Brexit Halloween.
Gold markets
Gold has held up well considering Asia risk continued to bubble over, but with a currency accord leaking into the trade risk equation, Gold is benefiting from a weaker USD versus the Euro and the risk destabilizing Brexit noise
Overall, however, weak global economic data along with the uncertainty around the trade talks between the U.S. and China should continue to act as a tailwind. The short-term narrative remains the same.
Are investors sticking to their game plan on Gold?
It appears investor remain and opportunistic buyers of Gold on dips.
My Gold View
I'm pencilling in one more rate cut this year but three more next year. Ultimately, I see the 10-year U.S. bonds trading at 1.25 per cent then. But Gold will struggle to make explosive gains if the U.S. 10-year bonds remain above 1.5 per cent, so the yellow metal needs help from a weaker U.S. economy. Indeed, there could be considerable headroom for Gold to move significantly higher as the US economy slows and even more so as we start to factor in the U.S. election risk which is one of the primary reason to remain long Gold beyond the current trade war narrative.
In the meantime, it's virtually impossible to predict with any degree of certainty the short-term direction for Gold amid a deluge of headline risk.
Brexit
The chance of a Brexit deal by Oct.31 continues to evaporate. The EU-27 and U.K. government remain at loggerhead over the critical issues of customs checks and the administration of the Northern Irish border. Which of course leads to the million-dollar question of whether Prime Minister Johnson will comply with the Benn Act and request an extension to Article 50 until Jan.31 2020. All of which suggests GBP election hedges my start to accelerated
Japanese Yen
Impossible to trade with any high degree of confidence as the market is directionless, but if anything, the overall the hostile trade language seems to have improved, so risk sentiment is a bit less doomy. Safe-haven currencies have been the biggest losers on the back of that, mainly JPY, after everyone and their pet dog pilled into the Yen of late.