In spite of the anaemic volumes overnight, the USD was broadly weaker. Most are attributing the lower volumes to the start of spring break which is traditionally a time for many US traders to head south with their families. But the miss on last Friday’s AHE and easing of overall inflation expectations has seen traders subtly downgrade of the Fed’s interest rate path and the dollar has weakened in consort.
Equity investors are finding it difficult to ignore the gnawing concerns about trade wars and are adopting a defence first strategy despite the Goldilocks jobs number. Keep in mind the spotlight will be on US CPI tonight, and it was only one month ago a surprise inflation print sent the market into a tailspin, so likely some caution ahead of the critical US inflation data. Overall investors remain very cautious as sentiment recovers.
Speaking of trade wars and protectionism, President Donald Trump issued an order Monday evening blocking any merger of the chipmaking giants Broadcom (NASDAQ:AVGO) and Qualcomm (NASDAQ:QCOM), saying it was necessary to protect national security. There is “credible evidence,” the order says, that if the Singapore-based Broadcom took control of the US-based Qualcomm that the company “might take action that threatens to impair the national security of the United States.” Pretty clear the president is setting sights on Asia using what seems to be an arbitrary national security provision.
Oil
Oil prices moved lower in NY after Energy Information Administration published a report that Crude production from seven major U.S. shale plays is expected to see a climb of 131,000 barrels a day in April to 6.954 million barrels a day with the Permian Basin to see the most significant play with production increasing 80,000 barrels per day. Both the surge in US production along with rising US exports gaining a bigger slice of the Asian pie continue to weigh on OPEC compliance. On cue, media reports are suggesting another fissure forming on OPEC compliance. On one side is Saudi Arabia, which wants oil prices at $70 a barrel or higher, and on the other is Iran, which wants them around $60 fearing that US shale production will continue to ramp up production as prices near $70.00.
Prices bounced off overnight lows the bearish signals continue to form which should weigh in top side momentum ahead of this week’s critical inventory data.
Gold
Gold prices were stable to higher overnight as the USD nudged lower as higher US interest rates fears have abated after the lower wage report on Friday. But gold traders are adopting a more neutral stance as we enter Fed blackout period. While a March hike if fully priced in, traders usually get a bit anxious awaiting the Fed statement and key forward guidance, so we should expect interest rate uncertainty to weigh on prices over the short term.
Currency Markets
The Japanese Yen
The dollar traded either side of 106.50 levels overnight, but we’re probably nearing a short-term inflexion point after the markets failed to move above the 107 level when risk appetite blossomed on the lower wages inflation print and US-North Korea headline. Global uncertainty and risk aversion continue to linger, but overall markets remain very sticky within the 106 handle.
I’m confident traders were holding onto USD/JPY shorts by a thread at yesterday weekly Asia open, but the top side was tempered with the developments in the Moritomo scandal.
The escalation of Japan political risk tops all and will continue to push USD/JPY lower as these headlines evolve around this deepening scandal.
The Euro
The euro seems very content to trade around the 1.2300 levels, and traders are showing little interest in any direction. Likely a function of the recent softer run of economic data but the Euro remain very much an inflow and policy normalisation play, and traders continue to buy the dips expecting stronger output growth to re-emerge.
The Australian Dollar
The Australian dollar is still enjoying the bounce in risk sentiment while the softer US wages continues to weigh US bond yield. However, commodity markets are showing some stress as oil prices fell on US supply concerns. Given the Aussie dollar strong proclivity to commodity prices, top side momentum will be tempered even more so with interest rate rates as playing an insignificant role in AUD fortunes.
The Malaysian Ringgit
The market remains a range play as investors remain very cautious as the EM FX Asia point of view recovers. Stronger jobs headline with subdued wage inflation should continue to prove supportive for the ringgit this week. However, the potential escalation in trade tension continues to loiter.
Given the constant barrage of US increasing oil production headlines weighing on oil prices, the MYR is getting little support energy prices, but at these current levels, minor sell-offs are not denting overall sentiment but a more profound move below WTI 60.00 could.