Equity Markets
Stocks and risk assets have opened relatively composed, despite data released on Sunday which showed China's exports unanticipatedly shrunk, with sales to the U.S. plunging 16 per cent as trade wars grumble on.
The People's Bank of China stimulus action on Friday comes at a timely juncture after it said it will cut the amount of cash banks must hold as reserves to the lowest level since 2007, infusing liquidity into an economy facing both a domestic downturn and blustery trade-war headwinds. You don't have to look much further than the China exports sector for confirmation that the Chinese economy is struggling. China trade is the biggest casualty of increased U.S. tariffs.
China trade headlines highlight a contraction in exports, further declines in imports and narrowing surplus. A resounding negative yes, but if you look at these in the month-to- month terms, they are not nearly as bad as initial headlines suggest. Imports are up two months in a row, for instance, while further lending in Total Social Financing later in the week is expected to rise offsetting slower trade.
Although traders are always on edge waiting for the next trade war headline, they're leaning on the pillars of support from monetary policymakers as the expectation is running high for a significant monetary policy response by global central banks. Indeed, the ECB is expected to deliver a substantial policy package on Thursday while Federal Reserve Chairman Jerome Powell's last speech before next week's policy meeting cemented views for another Fed cut.
With investors ability to dial-up and down leverage at a moment's notice, the market will remain very volatile to both macro data in headline risk this week.
Oil Markets
There was a surprising changing of the guard at the top of Saudi Arabia oil hierarchy after King Salman dismissed Energy Minister Khalid al-Falih, and who decided to keep it "all in the family" by putting, Prince Abdulaziz in charge of oil policy.
The writing was in the cards after al-Falih was removed as chairman of Saudi Aramco amidst internal squabbles over the IPO. But the change at the top doesn't necessarily mean a shift in policy as much as it's being viewed as a move to improve relations within OPEC and non-OPEC producers in the wake of the latest Russian compliance fissures.
In spite of the dreary China trade data, oil prices remain supported by last week's China RRR cut and expectation for central banks around the world to offer more support to economies all of which is getting framed by the "trade calming "effect from the scheduled U.S.-China trade talks which continues to resonate and keeps the market's "hope" trade alive.
The ECB decision is the macro focus of the week but with no less than five central banks on tap next week (FOMC, BOE, SNB, Norges and BOJ) – it's not like the ECB will need to stand on its own as all global central banks are expected to wax dovishNonetheless, traders have a fair amount to digest this week after China's trade numbers, with the focus turning to European IP releases and global CPI prints so we could be in for a bit of bumpy ride as the comprehensive economic calendar takes center stage this week.
Gold Markets
Gold markets took an absolute drubbing on Friday as hefty positioning caught up with the reality of the massive uptick in risk sentiment, triggering waves of profit-taking and stop-losses as newly minted defensive strategies hurriedly ran for the exits. Reports Gold CTAs who were showing all 12 strategies still long, first exit levels were triggered at Spot 1512.6 as the market went parabolic, making them shift to short term selling mode
While the lower than expected jobs headline report provided a temporary updraft on Friday, any hopes for an extended rally were dashed by Chair Powell who maintained a positive economic outlook which all but snuffed out the market expectations of a more significant 50 basis pointer response from the Fed.
However, the problem that Gold markets could face is, just as the Bank of Canada threw cold water on the prospects of aggressive rate cuts this week, there's a small but growing chorus getting more vocal thinking that central banks are gingerly walking back from the cliff edge of rate cut mania. So, in the absence of Fed Sspeak due to the pre-FOMC blackout, global economic data will hog most of the limelight.
Absent a trade deal or barring fiscal stimulus in core Europe; traders continue to expect U.S. yields to " catch down" to negative global yields which should ultimately provide the cure-all elixir to reverse the Gold market's recent slide.
Yuan
The RRR cut will most likely skew China’s money market rates on a downward trajectory and could generate some short-term pressure on the RMB. On the other hand, progress in the trade talks should buttress the depreciation pressure while the Pboc is expected to remain loyal to implementing countercyclical measure to hold the yuan stable ahead of the U.S.-China trade talks.