Markets
Overnight price action is swirling around this week’s key drivers. Dovish Fed, Brexit and Trade War
USDJPY remains lower EURUSD higher following soft US housing data – all speaking again to the market’s sensitivity to weaker US data given the Fed dovish U-turn.
US Stocks moved aggressively lower, led by technology, as trade talks sour beyond APEC disarray after inside sources told the South China Morning Post SCMP that Liu He, China’s chief trade negotiator, and Steven Mnuchin, Treasury Secretary, have rescheduled their talks for Buenos Aires instead of Washington
On the Trump- Xi G-20, we should expect more freeze than thaw on this outcome if the APEC disarray was any sign of things to come.
Oil Markets
Oil traded with heavy tone most of the NY morning dominated by the trade war, equity noise and negative macro factors which were compounded by OPEC + uncertainty after comments from Russian Energy Minister Alexander Novak suggest that an OPEC production cut is not set in stone.
Although the latest COT, which has been a decent indicator of future price action on oil markets, signals bear. However, prices recovered in US afternoon trade suggesting markets are starting to discount demand uncertainties and rising supplies into the forward assessment which tempers the risk of another meltdown. But amid declining Iranian production and a possible supportive OPEC+Russia decision at the December 6 summit, we could see a gradual recovery in prices.
But of course, the Khashoggi factor is impossible to ignore as it’s uncertain that Saudi Arabia plays with fire cutting production when the President continues to support MBS. Or are they so annoyed about getting double-crossed by the breadth of US Iran waiver that the could throw all caution to the wind?
Gold Markets
The Feds have changed the landscape to a more dovish terrain suggesting that they too are turning a little bit risk-averse. Great signal for gold prices which should see the dollar struggle into year-end why gold will continue to feed off Brexit and trade war risk. With trade war unlikely to thaw, equity markets could sputter into year-end adding another kicker for gold prices.
US Equities
It was a very intense session on the S&P tech sector woes continue as non-stop stream of negative headlines is showing few signs of abating. While Apple (NASDAQ:AAPL) order cuts were expected, “chip gate” was back in the headlines after China alleges ‘massive’ evidence of chipmaker violations. Meanwhile, scrutiny is back on the social media industry as without question new regulations are coming.
Currency Markets
The Feds have changed the playing field and are preparing the markets for a monetary policy response to any wobble in tier one data. All of which tells me to err on the side of forwarding policy despite little evidence in a US economic wobble, as we could see a very aggressive response (USD sell off) to any Tier one economic data miss. But when you factor in sagging equity markets and Brexit to the mix, it makes for challenging markets which suggest to me that traders do not have a lot of skin in the game this shortened holiday week as there is far too much noise amid dwindling liquidity.
Japanese Yen
With few reasons for USDJPY rally, the path of least resistance remains skewed lower.
The Pound
Its all quiet on the Westminster front. May is hanging tough, more than up for the battle and making a believer out of some as GBPUSD firms overnight.
Antipodean
Bad news on the Trade war front is bad news for both the Australian and New Zealand dollar. RBA minutes, as usual, will be a non-event as the Antipodeans are being viewed as a proxy trade for China risk. Not to mention there is no chance of any policy shift given the Feds are adopting a more defensive tack.
The Malaysian Ringgit
Its been very quiet with the markets trading in a sideways fashion. Oil prices are basing while and US Bond yields are softer. Both factors are positives for the ringgit. However, the overhang from the APEC disarray is keeping investor guarded.