National Day of Mourning – Wednesday, December 5th
There will be limited trading hours for some US exchanges on Wednesday, December 5th, in observance of George H.W. Bush.
Markets
No one particularly enjoys these markets; even if you’re on the right side of the stick. Believe it or not, traders do have a moral compass when it comes to market routs knowing full well many unsuspecting investors pensions are at stake
This current meltdown has all the nasty hallmarks that traders typically call the perfect storm after investor confidence took a shellacking overnight and are probably left feeling duped, tricked and maybe even snookered by some ill-advised backslapping comments post G-20.
The risk rout continues to dominate conversations this morning. And while trade war is certainly the number one driver of global risk sentiment, the current meltdown is morphing into a Hydra with familiar points of irritation, Trade, Fed, Brexit, Italy, global growth coming to a head
But adding to investor despair is US bond curve inversion, the thing bond markets most fear and it’s happening right in front of us. While US 10y yields are trading sub 2.89% amid an inverted 3s5s curve, 2s10s fell sub 10bp, marking the lowest levels since the Great Financial Crisis.
Equity markets
The S&P 500 was dragged lower, currently 3.25% lower on common concerns. The market nearly recovered a third of that loss, but a Trump headline around 15:00 EST sent it tumbling again. The Administration is reportedly eyeing a higher postal shipping rate for a major online retailer.
Oil markets
Oil prices are sinking on the latest API inventory report
The OPEC summit weeks are always exciting headline-wise, but for those looking for more confirmation of the global supply glut, as if we need a reminder. The American Petroleum Institute came in an unexpected 5.4 mmbls build Again befuddling expectations for higher refining rates to produce a seasonal draw While stockpiles at the Cushing, Oklahoma delivery point for WTI futures increased 1.4 mmbls. While Distillate inventories increased by 3.6 mmbls last week according to the API, exceeding expectations for a smaller seasonal increase. Gasoline inventories rose 4.3 mmbls previous week according to the API, also more than expected. Pretty bearish but we will need to wait for confirmation from the more precise DOE weekly petroleum report
On the headline roulette wheel, the markets were in flux all day digesting headlines from OPEC+ producers, who are still considerably apart going into Thursday’s OPEC summit in Vienna. OPEC is floating trial balloons suggesting all producers cut by 3.0-3.5% from October production levels, with no exemptions. But again we’re back to uncertainty on both sides of the equation, but when compounded by the risk tumult and any positivity from G-20 virtually evaporating, oil priced have come under pressure as risk sentiment continued to melt after President Trump 3 PM EST headline
Gold Markets
The Global market rout has triggered safe-haven demand for gold. Again, the move above 1240 was triggered by a weaker dollar, but Gold remains very well supported by bearish equity market sentiment as the toxic elixir of Trade, Fed, Brexit, Italy, global growth comes to a head. This despite the USD recovering some overnight losses.
Currency Markets
So, what’s driving the dollar? Haven flow but arguably stop losses are helping the cause as the dollar was on sale yesterday triggered by, in my view the USD/CNH risk premia unwind
EUR
Not too surprising EUR/USD proved to be one of the most hypersensitive pairs to a strong USD trading lower as much as 100 pips. The Euro will continue to be the best short-term trade to express any US dollar strength given the contentious political landscape, weak economic data and the ECB who will probably contend for the most dovish central bank on the planet
CAD
Speaking of stop losses, Canada bear is out prowling the landscape ahead of Wednesday BoC meeting. But I continue to side with Bay Street CAD $ perma bears as the deep, deep discounts on the Western Canadian Select prices will probably keep the BoC dovish. And like their US counterpart continue to signal further data dependency
What’s next?
None the less I don’t think this latest move is an open invitation to buy dollars ahead of a potential government shutdown and a likely disturbing Mueller disclosure
MYR
The Ringgit had a splendorous day basking in the afterglow of robust bond buying flows as the USD/MYR is melting through stop losses like a hot knife through butter. So, the combination of long MYR and large foreign investor bond duration appetite triggered a complete and unexpected reversal on MYR sentiment.
Oil prices are a bit lower today, but unless there are a complete meltdown and no supply cut agreement at this weeks OPEC summit, the MYR should trade well. With support at 4.17 being sliced through with ease, we have entered a new trading range of 4.14-4.17.